S. Korean shipbuilders to get major govt support

South Korea is home to the world's three biggest shipbuilders, including Hyundai Heavy Industries (right). The government plans to order more than 250 vessels to strengthen the efficiency of shipping firms to the end of the decade.
South Korea is home to the world's three biggest shipbuilders, including Hyundai Heavy Industries (right). The government plans to order more than 250 vessels to strengthen the efficiency of shipping firms to the end of the decade.PHOTO: BLOOMBERG

SEOUL • South Korea, home to the world's three biggest shipbuilders, plans to spend about 11 trillion won (S$13.4 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 about 6.5 trillion won in financing support to strengthen the efficiency of shipping companies to the end of this decade, said Finance Minister Yoo Il Ho on Monday.

Hyundai Heavy Industries, the world's biggest shipbuilder, will spin off its non-shipbuilding businesses, while Daewoo Shipbuilding & Marine Engineering, the second biggest, plans to cut 5,500 jobs by 2018, the government said.

The local shipbuilding industry has been restructuring and has already shed 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 will not be back to the levels seen between 2011 and last year, the government said.

While Seoul said it expects the vessel-ordering programme to help build up the shipping sector as well, Mr Yoo's comments reflect the focus of its efforts on propping up shipbuilders, with Hanjin Shipping, the nation's largest shipping company, filing for court protection in late August.

RIGHT DIRECTION

The government is taking the right step to help the shipping and shipbuilding industries through these measures. The critical key point will be how soon these measures will be implemented and whether all the money will be spent.

ANALYST AT SHINYOUNG SECURITIES UM KYUNG A, on plans by South Korea to give the two industries a major boost.

"The government is taking the right step to help the shipping and shipbuilding industries through these measures," said analyst Um Kyung A at Shinyoung Securities 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, the world's three biggest shipyards, said in the second quarter that they planned to raise a combined 8.41 trillion won by selling their non-core businesses as part of restructuring efforts.

The so-called Big Three will cut 32 per cent of their direct workforce by 2018 and reduce their operations by 23 per cent, according to the government. The Korea Labour Institute has estimated that a further 40,000 jobs, which will be mostly sub-contract 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," Mr 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 US$2.4 billion (S$3.3 billion) from US$1.2 billion, according to a government statement on 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.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on November 02, 2016, with the headline 'S. Korean shipbuilders to get major govt support'. Print Edition | Subscribe