By Kim Tong-hyung
Staff Reporter
As the economic storm rages, the co-chief executives of the world's largest shipbuilder are offering to work for free as they attempt to steer the company back into calmer water.
Now, if only trimmed payrolls at the top would come close to making up for Hyundai Heavy Industries' eroding riches, with orders drying out faster than a bun on a grill.
In a surprise announcement Thursday, Hyundai Heavy CEO Choi Kil-seon and co-head Min Keh-shik will be returning their entire salaries until the company's ``business crises'' are eliminated.
The company's eight vice presidents are giving up half of their salaries, while 180 other senior executives will be taking 30 percent pay-cuts, Choi said, in a display of gratitude toward the labor union agreeing on a wage freeze last week.
There's no doubt that the decision by Hyundai Heavy's top management has put reluctant executives at other companies in an awkward place, but it's also obvious that the shipbuilder would need much more than just motivational gestures to deal with collapsed demand and delayed payments.
According to market research site, Chaebul.com (www.chaebul.com), Thursday, Hyundai Heavy currently has the worst debt ratio among the country's 10 largest conglomerates, at around 314 percent.
Granted, the figure isn't a fair representation of the company's financial condition, as down payments on ship orders were also counted as debt. However, a closer look at Hyundai Heavy's cash reserves indicates that financial trouble may lie ahead.
At a time when cash is king, Hyundai Heavy is growing alarmingly short of it. The company had more than 4 trillion won (about $2.5 billion) in cashable assets around September last year, before the economic downturn took hold, but the figure is now below the 2 trillion won mark, with orders dying up.
Hyundai Heavy said it had around 12.6 trillion won in liquid assets, and 16.4 trillion won in current liabilities at the end of 2008. The 3.8 trillion won gap represented an increase of more than 1.5 trillion won from a year earlier, according to the company's financial records.
The contraction in global ship demand is hitting the local shipbuilding industry hard, as Hyundai Heavy's main rivals ― Samsung Heavy Industries, Daewoo Shipbuilding and Marine Engineering and STX ― are also witnessing their cash evaporating.
The big-four shipbuilders have failed to secure a single combined order last month, according to industry figures, and the increasing number of shipping companies canceling orders or requesting delays in delivery could further cause cash to erode.
``Since the shipbuilders have secured enough orders for the next two or three years, it would be difficulty to say that their long-term prospects are threatened, but there's no doubt securing cash flow for the short term is a critical matter for the companies,'' said an analyst from Daewoo Securities.
Samsung Heavy issued more than 700 billion won in three-month commercial paper (CP) last month for short-term cash influx, after seeing its cashable assets trimmed by more than 1 trillion won over the past six months to 2 trillion won.
There are also talks within the industry that Hyundai Heavy is considering issuing some 1 trillion won in corporate bonds in the near future to gain some breathing room, which would be the first time since 2002 that the company has offered corporate bonds.