Controversial STX Rebirth
Controversy is brewing over additional support for STX Offshore & Shipbuilding, into which 5 trillion won (US$4.6 billion) of financial resources is to be poured by creditors for corporate stabilization. They are saying that more money will have to be spent in 2016 and later, too. “As the case may be, extra hundreds of billions of won may be required from 2016 unless the current recession and price dumping in the shipbuilding industry are addressed,” said one of the creditors.
The creditors recently opted to cancel the orders for the 50 or so vessels STX Offshore & Shipbuilding won in the past. The reason for the decision is price dumping, which can be incompatible with corporate resuscitation.
The problem is that similar situations are repeated nowadays due to the doldrums in the industry. Besides, some shipowners are taking advantage of conditions unfavorable to STX. The company won contracts on the condition of increased advanced payments, but those payment have been consumed as operating costs. The 1.8 trillion won (US$1.67 billion) scheduled to be invested by the creditors sooner or later is going to be spent for the purpose of order cancellation and borrowing repayments as well.
Some of the creditors claim that STX’s price dumping results in a drain of national wealth. “STX, in tight liquidity, focused only on advance payments and obtained the orders at a cost approximately 20% lower than the original, only to fill the pockets of foreign shippers,” they said. The refund-guaranteeing financial institutions are to return the advanced payments if the contracts are breached by the shipbuilder. However, the local creditors have to pay compensation while disposing of the dumping contracts.
“There would have been no problem if only a couple of ships had been won at a decreased price but, in fact, most of the contracts are such deals as of now,” the creditor explained, pointing out, “The Korean government is forcing financial companies to maintain their qualifications as the creditors with the necessity of additional financial support within two to three years on the rise.”