Shipbuilder Daewoo faces breakup calls after 22 years with no buyers

[beijingwalker]

Shipbuilder Daewoo faces breakup calls after 22 years with no buyers​

Money-losing South Korean group could be sold off as separate defense, civilian operations
Japanese and South Korean players are struggling to turn a profit as industry leader China State Shipbuilding Corp. undersells them.

Daewoo, the world's third-largest shipbuilder, has essentially been under South Korean government control since 2000. (Photo courtesy of Daewoo Shipbuilding & Marine Engineering)

KOTARO HOSOKAWA, Nikkei staff writerAugust 20, 2022 10:40 JST

SEOUL -- After multiple failed attempts to find a buyer for over two decades, talk of breaking up South Korea's Daewoo Shipbuilding & Marine Engineering into two groups has emerged.

Such a proposal would separate Daewoo's defense-related operations and its civilian business, letting the company explore a wider range of buyers including overseas.

The move also could spur consolidation in the shipbuilding industry, where cutthroat competition among South Korean, Chinese and Japanese players continues to drive prices down.

On Friday, South Korean industry minister Lee Chang-yang summoned the chief executives of the country's top three shipbuilders: Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo. Lee announced the government plans for technical training and other initiatives, stressing that "corporations and government must work in tandem to make the most of the current tailwind," the ministry said in a news release.

What the executives discussed with Lee was not revealed, but the meeting stirred speculation that South Korea is paving the way to restructure Daewoo.

The state-backed Korea Development Bank first bailed out the shipbuilder in 2000, after the larger Daewoo Group collapsed in the wake of the Asian financial crisis. Since then, over 7 trillion won ($5.2 billion at current rates) of state aid has been injected into Daewoo. KDB now holds a 55.7% stake in the company.

KDB for years has sought a domestic buyer for the embattled shipbuilder, with every attempt thwarted by market downturns and antitrust concerns. The latest deal, reached in March 2019 with Hyundai Heavy, was blocked by the European Union in January on the grounds that the combined company would control too much of the market for liquefied natural gas carriers.

Daewoo's finances have worsened in the meantime. The company booked a 99.5 billion won operating loss for the April-June quarter. Its capital ratio, an indicator for financial soundness, plunged to 13% as of the end of June from 37% at the end of 2020. The company has struggled to pay for some materials, stoking concerns over its ability to remain in business.

Daewoo recently came under the spotlight again after subcontractors occupied part of a shipyard to demand better pay. The roughly 50-day strike disrupted ship construction and resulted in an estimated 816.5 billion won in damages including late delivery payments.

Since the strike, South Korean President Yoon Suk-yeol has appeared eager to move forward on the Daewoo restructuring.

KDB Chairman Kang Seog-hoon said last month that measures were under consideration, including spinoffs.

Contracts to build naval ships, submarines and other defense equipment make up around 20% of Daewoo's revenue. In a breakup, these operations likely would be sold to a South Korean company. The rest -- including the construction of LNG carriers, container ships and related facilities -- could be sold to either a domestic or foreign buyer.

A consulting company has been hired to help draft a breakup plan.

Yoon's administration draws inspiration from Korea Aerospace Industries, which was created in 1999 through a government-led merger among the aerospace businesses of Samsung, Hyundai and Daewoo. If this model were followed, Daewoo's defense operations likely would be sold to rival Hyundai Heavy.

For the rest of Daewoo's operations, the government is looking both at chaebols -- South Korea's family owned conglomerates -- and shipbuilders based in friendly countries.

Japan, China and South Korea control the majority of the world's shipbuilding market. South Korean shipbuilders have particular strength in LNG carriers, where they have a roughly 80% market share.

But Japanese and South Korean players are struggling to turn a profit as industry leader China State Shipbuilding Corp. undersells them. Daewoo's two South Korean peers are also mired in operating losses. The sale of Daewoo, the No. 3 player, could trigger further consolidation in the industry, helping put a floor under ship prices.

Yet a breakup would face many obstacles. The core structure of Daewoo's naval escort ships and LNG carriers is built using the same process, and splitting them could impact efficiency. Labor unions strongly oppose such a move. Daewoo will need to restructure its liabilities as well, which topped 10 trillion won as of the end of June.

Shipbuilder Daewoo faces breakup calls after 22 years with no buyers

Money-losing South Korean group could be sold off as separate defense, civilian operations

asia.nikkei.com

 

[beijingwalker]

In Korea, Last year, the combined operating loss of the country’s three largest shipbuilding companies - Korea Shipbuilding and Offshore Engineering, Samsung Heavy Industries and Daewoo Shipbuilding - amounted to $3.3 billion. The loss was partly attributed to high steel costs in 2021.

With the trend persisting this year, the South Korean shipbuilders may have to delay their return to profitability again.

Already, KSOE has lost $313 million in the first quarter and is not expecting to make profits this year.

The other two shipbuilders also face the same predicament. In fact, Daewoo Shipbuilding recently cancelled a Russian LNG carrier order worth $270 million for non-payment.

Shipbuilding is actually a huge money losing business, they are building ships at a loss, the more you build, the more money you lose.

 

[Song Hong]

There are many intangible benefit of civilian ship building even if it loss monies. US has no civilian ship building. Today CVN Ford is 40 billion while predecessor Nimitz is just 10 billions.

Chinese navy ship building can storm ahead 下饺子 because she has a big civilian ship building industry.

 

[SaadH]

India should make a bid

 

[Menthol]

The competition is already unhealthy.

China's tactics, as the same as South Korea's and Japan's tactics before, they play with the price.

It's happening all across industries.

Old players win because they offer a cheaper price, and will be killed by new players who offer a cheaper price, and new players will be killed again by newer players who offer an even cheaper price again and again.

Basically, it's the spiral of death, just a matter of time.

 

[Song Hong]

China has the economy of scale in supply chain, being the world largest steel producer.

 

[beijingwalker]

China's shipbuilders are all state owned, they can afford a price war cause they are backed by the government. For privately owned shipyards, it'll be very hard to survive rnning on a loss.

 

[REhorror]

Such a shame, Daewoo sells some good products back in the day, their quality was even better than Samsung.

 

[casual]

The competition is already unhealthy.

China's tactics, as the same as South Korea's and Japan's tactics before, they play with the price.

It's happening all across industries.

Old players win because they offer a cheaper price, and will be killed by new players who offer a cheaper price, and new players will be killed again by newer players who offer an even cheaper price again and again.

Basically, it's the spiral of death, just a matter of time.

the idea is to bankrupt the competition and rise prices afterwards. Last one standing takes all.

 

[Daniel808]

the idea is to bankrupt the competition and rise prices afterwards. Last one standing takes all.

And China have the Capacity to become that one. That’s why they are moving to the Top at this moment

 

[Song Hong]

US steel price is 2x that of China. Not sure about China Korea HRC spread but sure it is substantial.

That means China can always undercut competitors.

Thanks to the China coal power fire plant. This is something Greeta Thurnberg type wants to shut it down all over the world.

 

[Two banks of the River]

India should make a bid

Some European Shipyards along with all their machinary were bought. But not enough orders. Why buy more ?

 

[qwerrty]

the idea is to bankrupt the competition and rise prices afterwards. Last one standing takes all.

china will do the same in semiconductor manufacturing in the next few years that's the US is so panic throwing out sanctions at china like lollipop and free money to intel, nvd, micron, etc.