Samsung Heavy Industries Shipbuilding (Geoje, South Korea)

South Korea to Spend $10 Billion to Boost Local Shipbuilers

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October 30, 2016

Samsung Heavy Industries. Photo: Lappino

By Jiyeun Lee, Kanga Kong and Kyunghee Park

(Bloomberg) — South Korea, home to the world’s three biggest shipbuilders, plans to spend about 11 trillion won ($9.6 billion) by 2020 to help the industry amid a dearth of new orders and prolonged losses.

The government intends to order more than 250 vessels and provide of about 6.5 trillion won in financing support to strengthen shipping companies’ efficiency through the end of this decade, Finance Minister Yoo Il-ho said Monday. Hyundai Heavy Industries Co., the world’s biggest shipbuilder, will spin off its non-shipbuilding businesses, while Daewoo Shipbuilding & Marine Engineering Co., the second biggest, plans to cut 5,500 jobs by 2018, according to the government.

The local shipbuilding industry has been restructuring and eliminated about 20,000 jobs in the first half of this year, amid losses from excess capacity and sluggish global trade. While recovery may be slow in 2018, it won’t be back to the levels seen between 2011 and 2015, the government said. While the government said it expects the vessel-ordering program to help build up the shipping sector as well, Yoo’s comments reflect the focus of its efforts on propping up shipbuilders, with Hanjin Shipping Co., the nation’s largest shipping company, filing for court protection in late-August.

“The government is taking the right step to help both the shipping and shipbuilding industries through these measures,” said Um Kyung-a, an analyst at Shinyoung Securities Co. in Seoul. “The critical key point will be how soon these measures will be implemented and whether all the money will be spent.”

Hyundai Heavy, Daewoo Shipbuilding and Samsung Heavy Industries Co., the world’s three biggest shipyards, said in the second quarter that they plan to raise a combined 8.41 trillion won by selling their non-core businesses as part of restructuring efforts.

Cutting Workers

The so-called Big Three will cut 32 percent of their direct workforce by 2018 and reduce their operations by 23 percent, according to the government. The Korea Labor Institute estimated another 40,000 jobs, which will be mostly subcontract workers, may be eliminated in the second half amid a decline in orders.

“Aggressive restructuring will be carried out to ensure financial soundness of the companies in case the dire situation prolongs and they would be ready should things start to recover,” Yoo said. “Companies will be monitored regularly on their restructuring progress and prevented from winning offshore orders at low prices.”

The minister was at a government meeting on steps to be taken for the shipbuilding and shipping industries.

As part of measures to support the shipping industry, South Korea will double the size of a fund to help shipping companies order more vessels, including bulk carriers, tankers and container ships, to $2.4 billion from $1.2 billion, according to a government statement Monday.

A new company, with a capital of 1 trillion won, will be formed to buy vessels for shipping companies. In addition, a fund which has been set up to buy the companies’ existing fleet will purchase as much as 1.9 trillion won by 2019 from the current target of 1 trillion won, and will also help seafarers to invest in container terminals and other facilities at home and abroad.

The government will also make efforts to attract more cargo into ports in Busan and other local terminals by increasing incentives to shipping companies that make calls.

© 2016 Bloomberg L.P

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