Smaller Korean Shipbuilders on the Edge of a Precipice

Smaller Korean Shipbuilders
Smaller South Korean shipbuilders are going through harsh times.

Daewoo Shipbuilding & Marine Engineering (DSME) succeeded in avoiding receivership as the South Korean government decided to provide 2.9 trillion won (US$2.6 billion) for the revival of the major shipbuilder.

Smaller Korean shipbuilders are going through harsh times though. Most of them have already gone under or are about to go bankrupt. “It is not desirable at all to stop supporting smaller shipbuilders suffering from the lack of work based on uniform criteria,” said an industry expert, adding, “The South Korean government needs to restructure the companies in view of their expertise so that they can benefit from the revitalization of the industry in the future.”

Sungdong Shipbuilding & Marine Engineering, which has three shipyards in Tongyoung, South Gyeongsang Province, has no more work to do once it delivers 16 tankers with a combined capacity of 113,000 tons to Europe in October this year. This company has signed no new shipbuilding contract at all since the beginning of last year although it used to rank 10th in the world in terms of order backlog.

Only one of its shipyards is in operation now. One of the other two is scheduled to be sold to Hyundai Development Company for 110.7 billion won (US$99.6 million) and the other one has been shut down. 530 of its employees left the company late last year, dropping the number of its employees to 1,460.

STX Offshore & Shipbuilding, which is currently in receivership, is suffering from the lack of work, too. Its ship delivery is slated to be completed in January next year. SPP Shipbuilding, which is located in Sacheon, South Gyeongsang Province, closed its business after delivering its last ship in February this year. Only 10 or so managers are left in the company as of now.

The South Korean government is not planning on any additional assistance for the smaller Korean shipbuilders. “These shipbuilders’ major business items are medium-sized tankers, container carriers and bulk carriers and Chinese companies almost caught up with them when it comes to the technology required for these items,” it explained, adding, “Besides, these types of ships built by the Chinese companies are more competitive in terms of price.”

In the absence of assistance from the government, the shipbuilders have no choice but to restructure themselves by means of private capital. The government is considering that financing by state-run banks has already reached its limit and is planning to make use of private equity funds down the road. To this end, it is to raise a fund of two trillion won by the end of this year, in which the private sector is to shoulder half of the burden.

The Original Posted by Jung Min-hee/Business Korea