Genting Hong Kong says German shipbuilder insolvency to spark defaults

MV Werften declared bankruptcy after failing to secure funding for the completion of the "Global One" mega-liner, which is already 80 per cent complete. PHOTO: REUTERS

HONG KONG (BLOOMBERG, AFP) - Genting Hong Kong, the troubled cruise operator controlled by Malaysian tycoon Lim Kok Thay, warned on Tuesday (Jan 11) of more defaults due to the insolvency of its German shipbuilding subsidiary.

The company “considers that it has exhausted all reasonable efforts” to negotiate with counterparties under the current financing arrangements, it said in a filing to the Hong Kong stock exchange. 

That came after MV Werften, an indirect wholly owned subsidiary, filed for insolvency on Monday to a local court in Germany, as salvage talks between the local governments and Genting came to a dead end.

Potential cross-defaults arising from that insolvency could amount to US$2.78 billion (S$3.8 billion), and relevant creditors affected “may have the right” to either demand payment or take actions regarding the financing terms, Genting said.

The cruise operator’s financial health rapidly deteriorated after the Covid-19 pandemic prompted a string of restrictions that has led to restructurings and insolvencies at travel industry companies around the world.

With travel still severely restricted during the pandemic, particularly in Asia, the company has seen demand for huge cruise ships or luxury mega yachts dwindle.

The cruise ship industry has also been shaken by a spate of recent coronavirus outbreaks on liners despite increased health measures, giving new headaches to the pandemic-hit sector.

Genting Hong Kong halted debt payments to creditors totalling US$3.4 billion in August 2020 and was in default of that amount as at Dec 31 that year. The firm, which has offered “seacations” amid a global cruise-to-nowhere trend, reported a record loss of US$1.7 billion last May.

In its filing on Tuesday, Genting Hong Kong said that the board is in discussion with bankers, shareholder partners in Dream Cruises Holding and professional advisers to evaluate available options.

Shares of the company have been suspended from trading since Jan 7 until further notice.

MV Werften and Lloyd Werft, both subsidiaries of Genting, filed for bankruptcy on Jan 10, 2022. PHOTO: REUTERS

Germany’s federal government has blamed Genting Hong Kong for MV Werften’s insolvency and 1,900 jobs lost as a result, saying that an offer of aid was turned down by the company.

MV Werften took the step after failing to secure funding for the completion of the Global One mega liner, already 80 per cent of the way through construction, according to the company.

Designed to carry close to 10,000 passengers, the huge ship had been due to leave the shipyard in 2021 - but the pandemic had knocked the company’s timetable off course and crimped its budget.

Around €600 million (S$921.7 million) is necessary to finance the completion of the vessel, for which the shipbuilder had been seeking support from the German government.

The state had asked MV Werften owner Genting to put forward 10 per cent of the capital, government coordinator for the maritime economy Claudia Mueller said in a press conference.

“On this issue, there was no agreement between Genting and the federal government,” Ms Mueller said.

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