Huge CBs to Be Matured
It has been found that three major Korean shipbuilders' corporate bonds that will reach maturity next year were 2.22 trillion won (US$2 billion). As shipbuilding orders are expected to recover in 2018, it is concerned that the three suffering from new order cliffs will suffer from the deterioration of its financial conditions next year.
According to the third quarter audit report of Daewoo Shipbuilding & Marine Engineering (DSME) on December 1, non-guaranteed bonds will mature three times in April, July and November of next year and their total amount will reach 940 billion won (US$846 million). Currently, DSME has only 74.94 billion won (US$67 million) in cash and cash equivalents and short-term financial instruments.
what is wwhat is worseWhat is worse, cash and cash assets of 325.3 billion won (US$292 million) are tied up such as providing deposits as security to the Korea Defense Industry Association to receive advance payments.
DSME plans to repay its corporate bonds through the sale of real estate and the early reception of some of payments for ships. In addition, it is expected that the company will be able to strengthen its sales activities that have impeded by its weak financial structure if capital is expanded within this year.
But even if DSME pays off all of its corporate bonds, some debts will remain. Its short-term borrowings are 5.202 trillion won (US$4.6 billion). Its liquidity bonds and the long-term borrowings which should be repaid within one year amount to 1.4087 trillion won (US$1.3 billion) and 1.6086 trillion won (US$1.4 billion) respectively, but it is a real challenge for DSME to pay off them. “The company plans to pay off its corporate bonds by raising funds in any way,” said a representative of DSME. “We expect that we will be able to extend maturity deadlines for short-term borrowings through deliberations with banks.”
Samsung Heavy Industries has 400 billion won (US$360 million) and 200 billion won (US$180 million) in corporate bonds that will hit maturity in February and September next year. The company had cash and cash equivalents and short-term financial instruments of 1.198 trillion won (US$1.1 billion) as of the end of the third quarter, and recently secured an additional 1.14 trillion won (US$1.0 billion) in operating capital thanks to the successful completion of a capital increase with consideration.
"We expect that next year our financial conditions will be better than now next as we will deliver six drilling facilities whose orders were won in a heavy-tailed system next year,” said a representative of Samsung Heavy Industries. However, the company will still have burdens with 2.601 trillion won (US$2.3 billion) in short-term borrowings and 1.609 trillion won (US$1.4 billion) in current maturities of long-term debt to pay off.
Hyundai Heavy Industries will see a total of 680 billion won (US$612 million) in non-guaranteed bonds mature on three separate occasions such as February and July of next year. Hyundai Heavy Industries expects that its financial structure will improve as its debt burden is dispersed to newly found firms in accordance with a recently announced split-up.
“Our financial structure is greatly improving as the debt ratio has fallen to below 100% due to the division of business, so there is no major problem in repaying corporate bonds among others," said a representative of Hyundai Heavy Industries. More than the half of its net debts will be transferred to new corporations, reducing its net borrowings to 2.13 trillion won (US$1.9 billion) from 4.73 trillion won (US$4.3 billion).