The South Korean government made an announcement on June 8 as to the current progress of and its future plan for corporate and industrial restructuring. According to the announcement, the government is putting business recovery led by creditors above M&A or spin-off when it comes to the top three South Korean shipbuilders and the two largest national flag carriers in the domestic shipping industry.
In the shipbuilding sector, Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering are planning to implement intensive self-rescue measures based on negotiations with their creditors. The three companies’ measures are worth a total of 10.3 trillion won or so. Hyundai Heavy Industries is going to prepare 3.5 trillion won by halting the operation of three dry docks, reducing the number of its employees and selling less important facilities.
Samsung Heavy Industries is to secure 1.5 trillion won in similar ways. Although relatively small in scale, its plan includes an increase in liquidity based on paid-in capital increase, which can result in assistance from the largest shareholder Samsung Group, and its creditors approved of the plan in this context. Daewoo Shipbuilding & Marine Engineering’s measures are worth 5.3 trillion won in total, including less dry dock operations, disposal of all of its 14 subsidiaries at home and abroad and personnel reduction.
The government is going to look closely into whether these measures are carried out well along with the creditors and take additional measures if necessary. At the same time, the government is planning on no additional funding as far as the restructuring of smaller shipbuilders is concerned. Under the circumstances, the future of Sungdong Shipbuilding & Marine Engineering, Daesun Shipbuilding and SPP Shipbuilding is likely to hinge on how thoroughly they stick to their self-help measures down the road.
In the shipping sector, the government is going to do anything it can do in order to help Hyundai Merchant Marine and Hanjin Shipping restructure their debts, reach agreements with shipowners in their charter rate negotiations and in particular, Hyunadi join the global shipping alliance. Still, it is going to resort to court receivership when things do not turn out well.
Hyundai Merchant Marine is currently in the final stage of its charter rate negotiations and at least some results are expected to become available before the end of this week. It recently finalized a debt restructuring plan and its accession to a shipping alliance is now the only hurdle ahead of the company.
Hanjin Shipping, which is already a global shipping alliance member, has to cope with debt restructuring and ongoing charter rate negotiations. This company is in conflict with the government and creditors over donation of private property by Hanjin Group chairman Jo Yang-ho with its liquidity problems standing out.