Source: Korea JoongAng Daily
Local shipbuilders, including the big three - Hyundai Heavy Industries
(HHI), Daewoo Shipbuilding & Marine Engineering (DSME) and Samsung
Heavy Industries - are having trouble making deals in new markets.
was initially hope that Iran might offer new business opportunities
after the lifting of economic sanctions earlier this year, but most
Iranian companies are not financially capable of operating big projects,
mainly due to a lack of capital caused by a decade of sanctions.
Iranian companies don’t even have money for the initial down payment
needed to sign a deal,” a spokesman for a local shipbuilder said. “I
heard that even state-run companies like Islamic Republic of Iran
Shipping Lines [IRISL] have demanded a large sum of financial support,
sometimes up to 95 percent of a ship’s price, during recent negotiations
with Korean companies.”
Since Korea is a member of the OECD, a
company ordering a ship must pay 20 percent of the total cost, according
to OECD regulations. While Korean companies are dealing with these
demands, Chinese shipbuilders, who enjoy the support of state-run
banking institutions, are attempting to win Iranian business with
eye-popping financial benefits.
“The demand is obviously
increasing lately, following the lifting of economic sanctions in Iran,”
said Hong Jung-hwa, a researcher at the Korea International Trade
Association. “Korean companies, however, need to be careful when making
deals since Iran’s financial market is still immature. Such conditions
might make local shipbuilders hesitant in carrying out big projects,
since Korean companies have been suffering from financial problems for a
long time as well.”
The total operating losses reported by the
nation’s top three shipbuilders was 8.5 trillion won ($7.4 billion) last
year. But companies like HHI aren’t giving up. HHI is currently
negotiating with IRISL on making three 14,500 TEU (20-foot equivalent
unit) container ships worth $350 million. The company expects to
finalize the deal in the second quarter.
Regardless of such
efforts, Korean shipbuilders are predicted to face large-scale
restructuring, as overall market conditions are not expected to improve
much this year and the government has already shown it is willing to
force restructuring after Wednesday’s general election.
government needs to provide a special law that can give financial
support to companies like the HHI,” Kim Moo-sung, former leader of the
Saenuri Party, recently said, “and needs to stabilize labor issues in
regions related to the industry.”
Big companies like DSME are
currently being restructured. After its major creditor, Korea
Development Bank (KDB), decided to give 4.2 trillion won as part of
normalization work earlier this year, the company provided a plan to
reduce its operation cost by 1.85 trillion won by reducing its workforce
and selling unnecessary properties. The company has only been cutting
executive-level employees, but industry insiders say the reduction might
soon be extended.
Small and midsize shipbuilders are also
expected to face large-scale restructuring. Hanjin Heavy Industries is
currently under a financial audit and is expected to sign an agreement
that will allow its creditors to jointly manage the company.
creditors, including the state-run KDB, recently gave 130 billion won
of funds to Hanjin, as it needed money to purchase equipment, and the
shipbuilder had recently sold its assets, including an office building
in Manila, in order to provide the needed cash. The company is expected
to announce its normalization plan after the audit ends, but it is
already receiving voluntary resignations from administrative workers.
mergers and acquisitions are expected in the second half of the year as
well. SPP Shipbuilding was recently acquired by SM Group, which said it
will take over SPP’s shipyard in Sacheon, South Gyeongsang, for about
400 billion won.