Shipbuilding/Machinery Biweekly:Review of global shipbuilding data

Korea’s order vacuum due not just to sluggish demand, but also to financing.

    Shipbuilding orders still lackluster…: Clarksons reports that shipbuilding ordersplunged 64% y-y to 4.98m CGT worldwide over January-May, with a 70% y-y contractionseen in May. Commercial vessel orders have lagged ytd amid lingering macroeconomicuncertainties, with Korea suffering the most among major shipbuilding nations, as its: 1)share of the global shipbuilding market has plunged from 28% last year to 5%; and 2)orders fell 95% y-y over January-May—mainly due to a poor product mix. New ordersworldwide continue to focus on bulk carriers—lower-end vessels in which Chineseshipbuilders outpace their Korean peers—with an increase of 49% y-y seen over January-May, but those for oil tankers and containerships plunged a respective 91% and 99% y-y.

    …with those in Korea suffering from weak demand, supplier troubles: Inaddition to sluggish demand and an unfavorable product mix, Korean shipbuilders sufferfrom ailing financials, with all requiring refund guarantees (RGs) from financialinstitutions when signing new contracts, but those institutions balk at doing so given thedeteriorating financials and restructuring-related uncertainties surrounding the industry.

    Local media report that difficulties in securing RGs might deter the Hyundai HeavyIndustries (HHI) Group from inking contracts in relation to orders it recently won, andthat NH Bank plans to cut RG limits for that group and Samsung Heavy Industries (SHI)from KRW8t to KRW5t, which insinuates that: 1) even if shipbuilding demand recovers,domestic shipbuilders might not enjoy near-term order improvements until creditorsdecide which are most likely to ultimately survive, 2) orders will likely concentrate onselect shipbuilders able to secure RGs.

    Restructuring updates.

    Self-rescue plans of HHI and SHI reportedly approved: Local media on Jun 1reported that KEB Hana Bank approved HHI’s self-rescue plan, while KoreaDevelopment Bank (KDB) also reportedly gave preliminarily approval for a similar planput together by SHI, with the: 1) former’s expected to include the sale of HI Investment &Securities, spinning off of non-shipbuilding businesses, and labor restructuring; and 2)latter’s likely to comprise labor and capacity cuts along with capital raising via rightsofferings. Meanwhile, Daewoo Shipbuilding Marine & Engineering (DSME) is scheduledto submit a self-rescue plan to KDB next week, which most expect to include capacity andlabor cuts in addition to a spinoff of its specialty vessel division.

    Labor unions resist restructuring: Representatives of HHI’s labor union visitedKEB Hana Bank May 23 to deliver a letter of objection to workforce reduction and spinoffof the firm’s non-shipbuilding businesses, with plans underfoot from today to pressureChairman Choi Kil-seon and CEO Kwon Oh-gap to both step down. In addition, DSME’sunion is reportedly preparing to go on strike, demanding that management withdraw theself-rescue plan.