National Policy Banks Begin Full-Scale Restructuring of Small and Medium Shipbuilding Companies... "Finding Owners Is Not Easy"

Following Hanjin Heavy Industries, Daesun Shipbuilding
Accepting applicants until the 6th of next month
"Two consecutive years of profit, aiming for sale within the year"
"Due to oil prices and other factors... low possibility"

[Asia Economy Reporter Kangwook Cho] Following Hanjin Heavy Industries, Daeseon Shipbuilding has also entered the market as a sale item. Starting with Seongdong Shipbuilding & Marine Engineering, which was successfully sold last year, national policy banks are actively engaging in restructuring, including the sale of medium-sized shipbuilders under creditor management due to capital erosion. However, some concerns have been raised that the possibility of a successful sale may be slim, as ship orders for both Hanjin Heavy Industries and Daeseon Shipbuilding have dried up due to the global economic downturn caused by the spread of the novel coronavirus disease (COVID-19), compounded by the drop in oil prices.

According to the financial sector on the 7th, the Export-Import Bank of Korea announced the sale of Daeseon Shipbuilding through the lead sales agent, Samil Accounting Corporation, and will receive letters of intent from prospective buyers until the 6th of next month. As of the end of last year, the Export-Import Bank holds 83.03% of Daeseon Shipbuilding's shares, making it the largest shareholder. The sale will be conducted using the 'stalking horse' method, which involves selecting a preferred bidder (preliminary buyer) first. Subsequently, a separate public competitive bidding will be held, and if the bidding fails, the preliminary buyer will be granted the purchase right.

A representative from the Export-Import Bank stated, "We have been striving to normalize Daeseon Shipbuilding's management, and it appears that the operational foundation for independent survival has been established, as evidenced by two consecutive years of operating profit." They added, "We aim to complete the sale within this year and will work hard to ensure its successful execution."

KDB Industrial Bank is also promoting the sale of Hanjin Heavy Industries. Nine creditor banks held a shareholders' meeting on the 21st of last month and submitted a resolution agreeing to the sale of Hanjin Heavy Industries to KDB Industrial Bank, the main creditor bank. As of the end of last year, the share distribution of Hanjin Heavy Industries was composed of KDB Industrial Bank 16.14%, Woori Bank 10.84%, NongHyup Bank 10.14%, Hana Bank 8.90%, Kookmin Bank 7.09%, and the Export-Import Bank 6.86%. The sale method is competitive bidding, with the goal of completing the sale within this year.

The reason national policy banks are putting these two shipbuilders on the market is based on the judgment that their performance is improving. Daeseon Shipbuilding, which recorded an operating loss of about 28 billion KRW in 2017, showed a clear improvement by posting operating profits of 4.2 billion KRW in 2018 and 11.3 billion KRW in 2019 for two consecutive years. Last year, it recorded a net profit of approximately 4 billion KRW.

Meanwhile, Hanjin Heavy Industries posted separate financial statements last year with sales of 1.6095 trillion KRW, operating profit of 77 billion KRW, and net loss of 73.6 billion KRW. Notably, operating profit turned positive with a significant increase from a loss of 66 billion KRW the previous year, and net loss was substantially reduced from 963.4 billion KRW.

Industry insiders expect that with the sale of Hanjin Heavy Industries and Daeseon Shipbuilding following the successful sale of Seongdong Shipbuilding & Marine Engineering after four attempts last year, restructuring of insolvent companies held by national policy banks will accelerate.

However, there is also a view that the likelihood of a successful sale is not high. Due to the global economic downturn caused by the worldwide spread of COVID-19, order situations this year have been poor, and the drop in oil prices has increased the possibility of a transition to deflation. According to Clarkson Research, global ship orders in the first quarter of this year were 2.33 million CGT, a sharp 70% decrease compared to 8.1 million CGT the previous year. Hanjin Heavy Industries has not secured any orders so far this year, and Daeseon Shipbuilding has only secured two tanker orders (each worth 34 million USD).

Ji-hwang Ma, Senior Researcher at Hana Financial Management Research Institute, said, "Global ship orders in the first quarter of this year were extremely depressed, and orders for major domestic shipbuilders have also deteriorated significantly, especially with almost no orders for LNG carriers, which are the main order type for domestic major shipbuilders." He added, "Ship order recovery is expected after the third quarter when the global COVID-19 situation calms down, but energy prices will be a key factor."

This content was produced with the assistance of AI translation services.