03-08-2016

Three Shipbuilders Show Their Respective Strengths, Weaknesses

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A shipbuilding consulting draft came out about Korea Big Three shipbuilders — Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering. According to results of the consulting, Hyundai Heavy Industries, Samsung Heavy Industries, Daewoo Shipbuilding & Marine Engineering have competitiveness in the shipbuilding, offshore plant and special vessel sector, respectively.

Earlier, financial regulators and shipbuilders asked external organizations for consulting in order to make mid- to long-term survival strategy for each shipbuilder. The goal is to focus on a sector where each shipbuilder has competitiveness.

“We are now collecting the opinions of each company based on the consulting draft for the shipbuilding industry” said a representative of the financial industry. “We will listen to the rebuttals of each company and make the final decision.”

This shipbuilding consulting was arranged by the request of the Offshore and Shipbuilding Association to help each company seek ways to survival on its own. In early June, the association gave McKinsey the consulting work with the aim of stymieing low-priced orders and gluts in the supply of offshore plants. Then McKinsey conducted a survey for about two months.

This consulting produced quantified results of the weaknesses and strengths of business divisions of each company. The financial industry said that the consulting found that Hyundai Heavy Industries has strengths in the general shipbuilding sector. This is because Hyundai Heavy Industries has Hyundai Mipo Shipbuilding and Hyundai Samho Heavy Industries as its affiliates, which enables Hyundai Heavy Industries to possess a shipbuilding platform for t most types of ships. The Hyundai Heavy Industries Group accounted for 71.1% of shipbuilding orders on a consolidated basis in the first quarter of this year.

In addition, Hyundai Heavy Industries has a balanced business portfolio. This fact resulted in a positive evaluation of the company. Shipbuilding, offshore plants and oil refinery account for 33.1%, 15.4% and 28.4% of Hyundai Heavy Industries’ total sales, respectively in the first quarter of this month. “Hyundai Heavy Industries can supplement with earnings in other business divisions although a liquidity crisis takes place in its offshore plant division.”

It has been found that Samsung Heavy Industries’ offshore plant division is both its strength and its weakness. Samsung Heavy Industries was evaluated to have strengths in LNG tankers, drill ships and LNG-FPSOs among others. According to the evaluation, among the three shipbuilders, Samsung Heavy Industries was the first company to make a foray into the offshore plant business and earned trust enough to form a strong global network.

But Samsung Heavy Industries had the proportion of offshore plants relatively too high compared to other companies, analysts said. Offshore plants accounted for about 60 percent of Samsung Heavy Industries’ remaining orders. This means that unless oil prices rise higher than now, crisis situations such as delivery delays and the cancellation of contracts can continue.

Daewoo Shipbuilding & Marine Engineering has been found to have an advantage in the LNG tanker and special ship sectors. “Daewoo Shipbuilding & Marine Engineering’s remaining orders for LNG tankers accounted for about 40% of all orders in the global market. So, I think that this fact helped its LNG tankers be picked out as an excellent business sector,” said an insider at the financial sector. “Creditors evaluate that Daewoo Shipbuilding & Marine Engineering has a strength in defense hardware and LNG tankers. So when selling its divisions one by one, these divisions will sell first,” he added.

Creditors will give discriminative treatment in terms of financial support in the future among others based on the resulting of the consulting. In plain language, their strategy is to lead shipbuilders to reduce the proportion of the businesses where companies do not have competitiveness by conservatively evaluating a guarantee of advance payment refund and ship financing in such businesses.

In the meantime, the consulting includes a plan to sell off Daewoo Shipbuilding & Marine Engineering. In other words, the consulting reviewed how to sell off Daewoo Shipbuilding & Marine Engineering with the sustainability of the Korean shipbuilding industry in mind.

“The main purpose of this consulting is how to sell off Daewoo Shipbuilding & Marine Engineering,” said a representative of the creditors. “We intended to analyze which is more competitive, maintaining or selling off Daewoo Shipbuilding & Marine Engineering.”

Source: BusinessKorea

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