Political Consideration
It has been found that the government finally decided to revive STX Offshore and Shipbuilding and Sungdong Shipbuilding and Marine Engineering. Analysts say that the government said that it will give one more chance to the shipbuilders while taking into account a recovery of the shipbuilding market but, in fact, was concerned about the explosion of people’s pent-up anger in the southeastern region (Busan, Ulsan and South Gyeongsang Province) of the country where mid-sized shipbuilders were closed down in the advance of a local election.
According to a senior government official on February 1, the Ministry of Trade, Industry and Energy (MOTIE) discussed ways to restructure the shipbuilding industry with a consulting report for mid-sized shipbuilders with executives from shipyards including Oh Eun-sang, vice president of Sungdong Shipbuilding and Marine Engineering. This report was the results of the government’s consulting request to ask Samjong KPMG to diagnose the competitiveness of the two shipbuilders through the Korea Offshore and Shipbuilding Association in early January.
The report put more emphasis on the revival of the two companies than their liquidation. The report suggested that Sungdong Shipbuilding and Marine Engineering which focused on containerships and mid- and large-sized oil tankers, shut down poorly performing divisions and transform itself into a shipyard specialized in repairing vessels to survive. According to the report, STX Offshore and Shipbuilding should complete its management normalization plan to prune its workforce by 30% by April. "Chinese shipbuilders are hogging orders via a price war. To make matters worse, large Korean shipyards are eyeing on remaining orders as they are on order cliffs. Therefore, a massive restructuring is unavoidable," an industry official said.
This reversed the accounting firm’s conclusion in November of last year that the liquidation value of the two companies eclipsed their continuance value. "The government judged that it would save the two shipyards when taking into consideration their spin-off effects on the local economy," a government official said.
The consulting results will be sent to creditors such as the Korea Development Bank and the Export-Import Bank in the near future. The government plans to introduce measures and plans for the innovative growth of the shipbuilding industry early next month. This is because the restructuring may give additional shocks to the economy of the southeastern region where industrial production and employment and growth rates are plummeting. "It is still an interim result but we will discuss it and make the final decision," a government official said.