21-10-2016

Korean Shipbuilding Industry Will Change to Two-Frontrunner-One-Follower Race

Shipbuilding

The Korean shipbuilding industry is expected to change from the three-frontrunner (Hyundai, Samsung and Daewoo) race to a two-frontrunner-one-follower one.

It is forecast that the Korean shipbuilding industry will change from the three-frontrunner (Hyundai, Samsung and Daewoo) race to a two-frontrunner-one-follower one.

“Even though the Korean shipbuilding industry will be a three-runner race, it will be inevitable to grow Daewoo Shipbuilding and Marine Engineering (DSME)’s business divisions with competitiveness but jettison some of the company’s weak parts,” said a high-ranking government official on October 19. “Although the Korean shipbuilding industry will change from the three-frontrunner race to a two-frontrunner-one-follower one, it does not mean that DSME will vanish.” This means that the government believes that DSME will survive although the company is having trouble due to a new order cliff and operating loss.

Recently, global consulting company McKinsey forecast that DSME will see its cash liquidity hit the bottom as its operating profit ratio will drop to nearly -10%, double the operating profit over the past five years (-5% from 2011 to 2015) and need 3.3 trillion won to survive on its own so the company will hardly keep its head above water in 2020. Although the report did not conclude that the Korean shipbuilding industry should turn into a two-frontrunner race of Hyundai Heavy Industries and Samsung Heavy Industries, the judgment that DSME will not be able to be back on its feet can mean that the two-frontrunner race befits the Korean shipbuilding industry.

“Whether the report came from McKinsey or Clarkson, such reports are references and cannot be absolute yardsticks,” a government official said. “We cannot make a decision, depending on such reports only. We are collecting all opinions from those in the industry and industry watchers as well as the government.”

In order to make DSME survive, the government is planning to restructure its offshore plant and special ship divisions. Through the restructuring, the government will secure about 2 trillion won in liquidity and take it as a springboard for the troubled shipbuilder’s second take-off.

Source: Business Korea

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