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Rating downgrades for major shipyards in the offing

All News 11:14 January 05, 2017

SEOUL, Jan. 5 (Yonhap) -- South Korea's major shipyards may see their credit ratings downgraded in the coming months due to falling new orders and worsening financial status, industry sources said Thursday.

According to the sources, the combined annual new orders clinched by the country's big three shipbuilders -- Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. -- stood at US$9.1 billion in the first 11 months of last year, sharply down from $24.3 billion in 2015, $42 billion in 2014 and $54.3 billion in 2013, as low oil prices and a slowdown in the global economy reduced demand for new ships.

The falling new orders are further adding to their financial strain, although their bottom lines improved to some extent last year, recovering from the previous year's massive losses.

For one, Daewoo Shipbuilding bagged a meager $1.55 billion in new orders in the first 11 months of last year, compared with $4.5 billion in 2015 and $14.9 billion in 2014, the sources said.

The shipyard received massive financial aid from its creditors through a debt-for-equity swap and the sale of perpetual bonds late last year, which helped dress up its balance sheet without any cash inflows.

With the financial package from the creditors, its debt dropped to 5.4 trillion won at the end of last year from 8 trillion won, with its debt ratio falling to 900 percent from 7,000 percent, the sources said.

Daewoo Shipbuilding also should pay off or refinance some 940 billion won worth of debts maturing this year, but its cash and cash equivalent assets stood at 610 billion won at the end of September.

Hyundai Heavy is also feared to face a rating downgrade due to concerns over weaker-than-expected cash inflows.

Its annual new orders stood at $7.1 billion in the January-November period, from $19.8 billion in 2014 and $14.5 billion in 2015, according to the sources. Industry sources said the planned spin-off of its key businesses may further worsen its financial status.

Rating downgrades for major shipyards in the offing - 1


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