South Korean shipyards are asking state-run lenders to increase loans and extend financing for orders as a deeper-than-expected economic slump dries up their cash holdings.
South Korean shipyards are asking state-run lenders to increase loans and extend financing for orders as a deeper-than-expected economic slump dries up their cash holdings, industry sources said Wednesday. According to the sources, the shipbuilding industry called for the Korea Development Bank and the Export-Import Bank of Korea to increase their financing for shipbuilding orders and extend loans for their operations.
The moves came as shipyards in South Korea, the world's largest shipbuilding nation, suffered a sharp drop in shipbuilding orders.
Hyundai Heavy Industries Co., and other shipbuilders received record orders in the past few years on rising shipbuilding demand. But shipbuilding orders have all but vanished since September as declining global trade slashed cargo rates and demand for new vessels.
"Some small shipbuilders face a liquidity shortage. Major players armed with ample cash are also set to prepare for further potential difficulty," an official at Samsung Heavy Industries Co., the world's second-largest shipbuilder.
In the first two months of the year, only Samsung Heavy has won a single shipbuilding order valued at US$680 million. To compound their woes, shipping lines worldwide reportedly are demanding that orders be canceled and delivery of new ships be delayed.
To cope with vanishing cash reserves, local shipbuilders have recently tapped the local debt market to raise up to three trillion won (US$2.17 billion).
Hyundai Heavy, the world's leading shipyard, may sell debt worth up to one trillion won soon, according to industry sources. Its cash and cash equivalent dropped to 2.26 trillion won at the end of December from 4.14 trillion won three months earlier.
Samsung Heavy also saw its cash and cash equivalents drop to a two trillion won level recently from 3.37 trillion won at the end of September.
The shipyard, which sold 700 billion won worth of commercial paper last month, is seeking to sell another 700 billion won worth of bonds this month.
Daewoo Shipbuilding & Marine Engineering Co. (KSE:042660), the world's third-largest, is also considering tapping the local bond market this month to raise up to 500 billion won.
"Companies' cash holdings will continue to drop this year because of the severe economic slump, and their cash flows are unlikely to improve any time soon," said Lee Jong-woo, an analyst at HMC Securities. "They are preparing for that."