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Maritime Logistics Professional

May 9, 2016

No Merger for Ailing Korean Shipmakers

Photo: Hyundai Heavy Industries

Photo: Hyundai Heavy Industries

 The South Korea government plans to drop its forceful measures to push ailing local shipbuilders to merge with each other as mergers or additional cash outlays to Hyundai Heavy Industries (HHI), Samsung Heavy Industries (SHI) and Daewoo Shipbuilding and Marine Engineering (DSME) are unlikely to boost their bottom line, reports Korea Times.

The Korean ship buildes are under heavy pressure on accumulating debt and  zero new building orders in April. 
The creditors have been urging the ship builders to carry out their respective restructuring plans as well as come up with additional rescue measures as they struggle with mounting losses. The top three shipbuilders were opening up a possibility of significant restructuring measures including that of a merger.
Informed sources said that the Seoul has recently scrapped a plan to forge a "big deal" between the three shipbuilders.
"Pressuring shipbuilders to merge with each other or pumping them with more cash won't help the three shipbuilders,"said government sources.
An official at SHI said the Samsung Group's shipbuilding unit has no plans to acquire stakes in Daewoo Shipbuilding, though he said SHI was notified by the government to implement a contingency plan to keep the shipbuilder from complete fallout. 
"Considering the snowballing debts of the shipbuilders, there are no private companies with enough financial resources to carry out such mergers in Korea," he said. 
Critics still remain as experts claim that current level of the restructuring through the governmental injection isn't just good enough.
"They are just in a survival mode, on the inhaler, waiting for storm to go away," an industry expert said. "The recession may prevail longer than they expect. And the government cannot help them forever. In order to compete with Chinese shipbuilders in the global market, they should focus on what they can do better through merging. "
Meanwhile Korea’s top three shipbuilders recorded improved performances during the first quarter of this year, according to industry insiders.
The world’s No. 1 shipbuilder Hyundai Heavy Industries reaped its first profit in 10 quarters with a net profit of 244.5 billion won ($210 million), although most of the profits were from non-shipbuilding activities. 
Moreover, the troubled DMSE recorded a net profit of 31.4 billion won compared to its 1.1 trillion won net loss last quarter. 
Samsung Heavy Industries additionally saw improved performance, with a net profit of 15.9 billion won compared to a 42.9 billion won net loss last quarter despite a 21.6 percent decrease in revenue and 79.6 percent decrease in operating profit.
Samsung Heavy IndustriesSouth KoreaDaewoo Shipbuilding