Daewoo Shipbuilding & Marine Engineering is planning more intensive self-rescue measures to restructure its debt by the end of this month as the shipyard is struggling to stay afloat with weaker-than-expected orders this year, according to the company on Sunday.
Jung Sung-Leep, chief executive of Daewoo Shipbuilding, told the firm’s employees that additional proposals will have to include massive job cuts, pay freeze and closing down some of its docks.
“To convince the government, our creditors and the public, more thorough and harsher efforts need to be addressed through our self-rehabilitation plan in an effort to normalize management,” Jung said.
Last year, the shipyard devised measures to reduce some 1.85 trillion won ($1.57 billion) in debt by cutting 2,300 jobs by 2019.
The move comes as Korean shipyards are struggling to secure new orders, underscoring the protracted slump in the global shipbuilding sector.
Daewoo Shipbuilding, which initially sought to target orders worth $10.8 billion this year, has bagged only one contract to build two Suezmax tankers in a deal worth $130 million.
“We planned to resolve the liquidity crisis by securing a certain level of orders, but it seems that there’s a slim chance of seeing new orders in offshore plants and vessels,” Jung said.
Daewoo Shipbuilding is not the only one facing a slump, with many analysts projecting that the global shipbuilding industry will continue to see a slowdown.
Cash-strapped Korean shipyards, including Hyundai Heavy Industries and Samsung Heavy Industries, are undergoing creditor-led debt-restructuring programs after logging a combined net loss of 7.7 trillion won last year.
They have mapped out self-rescue plans, with a focus on reducing their workforces and selling overseas operations, including noncore assets, amid the government’s increasing pressure to revamp the industry.
Meanwhile, industry data showed that overseas units of the three shipyards have accumulated debt on overcapacity.
The combined debts of 34 affiliates and subsidiaries of the three major shipbuilders -- Daewoo Shipbuilding, Hyundai Heavy Industries and Samsung Heavy Industries -- stood at 5.36 trillion won as of the end of last year, according to market researcher Chaebul.com.
This is a 28.7 percent increase from 2010, when the shipbuilding industry enjoyed a boom.
One in two overseas units, or 16 companies, face capital erosion with their debt ratios exceeding 200 percent, the data showed.
The average debt ratio of the overseas units has nearly doubled in five years to 548.9 percent last year.
Of the three shipbuilding giants, Daewoo Shipbuilding’s overseas operations struggled with the biggest debt of 2.18 trillion won, up 43.2 percent over the last five years, while Samsung Heavy’s debt tripled to 1.26 trillion won.
Currently, Daewoo Shipbuilding’s Canadian unit DSME Trenton is under a court receivership after capital erosion.
The three shipbuilding giants’ overseas corporations swung to the red last year for the first time in five years, posting a combined net loss of 733 billion won.
By Park Han-na (
hnpark@heraldcorp.com)