World's Top Three Shipyards Seek To Raise $7.3B In Revamp

(Bloomberg) -- The world’s three biggest shipyards plan to raise a combined 8.41 trillion won ($7.3 billion) selling assets and cutting jobs as they seek to pare debt as part of a restructuring following losses last year.

Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. have submitted their fund-raising plans to their creditors, including state-run Korea Development Bank and KEB Hana Bank, South Korea’s government said in a statement Wednesday. The banks and regulators will meet twice a month to review the progress of the plans, according to the statement.

A slump in crude oil prices, which halved in the past two years, has roiled the nation’s shipbuilding industry as delivery delays and cancellations of projects translated into losses, while shrinking orders for new vessels have heightened concerns their cash may dwindle further. The South Korean government told the shipyards to submit their plans to help them better manage their financials and minimize the impact on the economy. 

Turning Around

The government, on its part, said it will bolster capital of state lenders by creating a 11 trillion won fund to help cushion losses as banks aid the restructuring, it said in a statement separately. The steps may be coming amid nascent signs of a recovery. Vessel deliveries in terms of deadweight tons increased 39 percent in May from a year earlier, said Park Moo Hyun, a Seoul-based analyst at Hana Daetoo Securities Co.

“Things are starting to turn around for the shipyards as more vessels and offshore projects are delivered to clients,” Park said. “The focus now should be on providing funds to help them win new orders.”

Hyundai Heavy, whose first-quarter net income beat estimates, plans to raise 3.5 trillion won selling shares in other companies such as KCC Corp. and Hyundai Motor Co., as well as its three financial units, the Ulsan-based company said in a separate statement. It will seek to save 900 billion won from job and pay cuts. The shipyard plans to cut its debt-to-equity ratio to 80 percent from the current 134 percent.

Jobs, Wages

Daewoo Shipbuilding, which counts Korea Development Bank as its biggest shareholder, will seek to raise 3.45 trillion won from sale of its 14 subsidiaries, two floating docks and the spin-off its specialty shipbuilding business, the company said in a separate statement. It will also reduce jobs and salaries to save money, it said. 

The latest plan is in addition to the 1.85 trillion won the shipyard said it will seek to raise in October last year. Daewoo Shipbuilding reported a net income in the first quarter versus a loss a year earlier.

Samsung Heavy plans to sell assets through bond sales and reduce jobs to raise 1.46 trillion won, the company said separately. It also plans to sell new shares if more cash is needed, it said. Brent crude traded at $51.51 a barrel on Wednesday, compared with about $115 two years ago, according to data compiled by Bloomberg.

South Korea has urged the companies to restructure and improve efficiency, while pledging more steps to help them reduce debt and weather the global slump.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Sam Nagarajan

Copyright 2016 Bloomberg News.

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