Posted : 2013-02-17 17:16
Updated : 2013-02-17 17:16

Shipbuilders delay new business plans

Samsung, Hyundai cut investment in solar projects

By Kim Yoo-chul

Major Korean shipbuilders are moving to either scale down or scrap their investment plans for new businesses in order to weather the business turmoil caused by the prolonged economic slump. Hyundai Heavy Industries (HHI), Samsung Heavy Industries (SHI) and Daewoo Shipbuilding are shifting their focus to stability from growth.

They are tightening their purse strings after being hit by a toxic mixture of a plunge in shipping rates and oversupply of vessels, as well as a slowdown in the European and Chinese economies.

As cash reserves are drying up hit by the industry's downturn, top management is not looking to long-term projects.

According to fund managers and stock analysts, the world's top shipbuilder HHI has decided to delay opening its ambitious solar cell plant in Ochang until the end of 2014, as global demand for solar technology-embedded solutions is still very weak.

Hyundai-Avancis, the joint venture of Hyundai and France's Saint-Gobain are building a copper, indium, gallium and diselenide (CIGS) thin-film solar module plant in Ochang with a total investment of 220 billion won.

The plant was initially designed to start production from the latter half of last year.

"Hyundai won't completely scrap the joint investment for the solar project. However, it won't make any additional investment in the plant this year,'' said Kim Il-tae, a fund manager from Taurus Investment, by telephone, Sunday.

Another fund manager from a major U.S.-based investment bank in Seoul said Hyundai has scrapped plans to build two photovoltaic plants in Arizona, and will sell its crystalline silicon production business.

Citing Hyundai's rising debt-ratio, Kim forecast Hyundai will be focusing on winning budget orders to weather the current bearish market.

Chun Yong-beom from IM Investment said, "The profit margin for Hyundai this year will remain at 3 percent. We are negative about the market outlook this year,'' Chun said.

However, Park Joon-soo, a spokesman for HHI, said the world's top shipbuilder is trying to win orders for large-sized container ships as the company still believes the demand for such premium vessels is still healthy despite the overall market downturn.

Due to the long build-times, the shipbuilding sector is heavily affected by boom and bust cycles as production can't be adjusted quickly. At this moment, there is a glut in vessels and productive capacity on the global market.

Samsung is also looking to suspend operations at its solar energy plant.

"We have no option but to endure the current tough period. We will invest in new projects with money that we earn. But not this time,'' said an official at SHI.

STX, a second-tier local shipbuilder, is selling its core assets to prevent itself from further business deterioration.

Lee Sung-hee, an STX spokesman, said his company is trying hard to clear away liquidity woes by implementing various restructuring measures.

Market experts said that local shipbuilders will continue to undergo tough times this year.

"The shipbuilding industry is facing limited growth. Shipbuilders have so far proven their advantages to offer advanced vessels with on-time delivery, better pricing and output commitment. But the good days are gone,'' Korea Development Institute (KDI) analyst Kang Dong-soo said.

However, Chun said that major Korean shipbuilders are better-positioned than their Chinese rivals to see a ''second boom'' once demand picks up.

"As new order flows stall, many Chinese builders shut down over the past year, though the top three Korean shipbuilders ― Hyundai, Samsung and Daewoo ― still go on doing business.''

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