(Bloomberg) -- South Korean shipbuilders aren’t out of the woods yet even as orders begin recovering, with the smaller ones facing collapse in the absence of government support, according to a shipping-debt trader.
The government will aid larger shipyards through ways such as giving them orders for the next few years, under its support policy for the shipping and shipbuilding industries, said Soo Cheon Lee, co-founder and chief investment officer of SC Lowy, a Hong Kong-based loan and bond trading firm.
“Hopefully that will give the big, major guys a lifeline for the next few years,” said Lee, who has two decades of experience investing in shipbuilders’ and shipping companies’ debts. However for the smaller yards, “I can’t think of a reason for these guys to exist,” he said in a March 16 interview.
A plunge in oil prices since 2014 has roiled shipbuilders in South Korea -- home to the world’s three largest shipyards -- as their customers canceled or delayed orders. Among major container shipping companies worldwide, Hanjin Shipping Co., once the largest in South Korea, collapsed in 2016 while others have merged to boost their competitiveness following years of accumulated losses and overcapacity in the industry.
STX Offshore & Shipbuilding Co., formerly listed on South Korea’s main Kospi index, has been under creditor-led restructuring since 2013. The government has said STX must come up with a restructuring plan, including job cuts, by early April or face court receivership a second time as creditors stopped funding.
Following Hanjin’s collapse, the government said Hyundai Merchant Marine Co. will serve as South Korea’s flag carrier.
While Hyundai Merchant is still unprofitable, the government is unlikely to allow the company to fail since South Korea needs a flag carrier to provide exporters with flexibility and more options, and it has also seen the negative impact from Hanjin’s collapse, Lee said.
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