By Choi Kyong-ae
Korea’s three biggest shipbuilders are set to post over 7 trillion won ($6.2 billion) in operating losses this year because the industry has not found a way out of a prolonged slump, industry watchers said Sunday.
The country’s “Big 3” shipyards ― Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering (DSME) ― separately inked nearly 5 trillion won in combined operating losses in the first half of the year due to declining new orders and rising manufacturing costs.
“Faced with record operating losses this year, those shipbuilders urgently need to sell non-core assets, resolve ongoing labor disputes over wages and welfare benefits and suspend any industrial action to help put the industry back on track,” shipbuilding officials said.
Among the Big 3, DSME seems to be in the biggest trouble, which could derail its creditor banks’ planned loans worth 4 trillion won to help the shipyard stay afloat.
In the January-June period, DSME reported an operating loss of 3.083 trillion won, shifting from an operating profit of 183.29 billion won a year earlier. It also swung to a net loss of 2.463 trillion won from a net profit of 70.8 billion during the same period, according to a regulatory filing. In the second half, DSME is reportedly expected to report more than 2 trillion won in operating losses.
Orders to build offshore facilities such as floating production storage offloading units won since 2010 were all mega-sized and sophisticated projects. As most of the deals were engineering, procurement and construction based, DSME couldn’t pass increased raw materials costs onto the customers who placed the orders, DSME said.
It therefore had to deal with unexpected additional costs during the construction process and this was reflected in its bottom-line as losses, it said.
Worse still, financial authorities and creditors led by the state-run Korea Development Bank have recently suspended the 4 trillion won loan program as DSME unionized workers didn’t accept the government’s demand for a wage freeze and no strikes in return for the loan.
As part of plans announced in August, DSME said it will reposition its workforce, improve productivity and liquidate non-core affiliates and assets, including its headquarters building in central Seoul.
Hyundai Heavy and Samsung Heavy have also cut their workforces, and sold non-core assets because they are also expecting increased operating losses for this year. But the shipbuilders and their unions are still at odds over wage terms and job security.
Samsung Heavy’s operating losses increased to 1.522 trillion won in the first half from 100.22 billion won a year ago. Hyundai Heavy posted an operating loss of 363.36 billion won, down significantly from a loss of 1.293 trillion won a year earlier, according to filings.