June 5, 2017 9:03 pm JST

Russia offers South Korean shipbuilders hope

Daewoo delivers first icebreaker LNG carrier, Hyundai launches joint venture

KIM JAEWON, Nikkei staff writer

The world's first icebreaker LNG carrier, built by Daewoo Shipbuilding & Marine Engineering, navigates through icebergs. (Photo provided by the company)

SEOUL -- Struggling South Korean shipbuilders are finding opportunities in Russia, with the recent delivery of the world's first icebreaking liquefied natural gas carrier there as well as the launch of a joint venture with a local shipping company.

Russian President Vladimir Putin attended the naming ceremony of an icebreaker LNG ship built by Daewoo Shipbuilding & Marine Engineering in St. Petersburg Saturday. The $320 million vessel was delivered to Sovcomflot, a Russian shipping company in March.

The vessel is part of the Yamal project that aims to produce 16.5 million tons of LNG a year. Russia's largest gas company Novatek leads the project along with French energy company Total and China National Petroleum Corp.

"The Yamal project paved the way for the Arctic route," Putin was quoted as saying by Daewoo Shipbuilding. "It will contribute to the development of the energy industry in the whole world as well as Russia and Europe."

Daewoo Shipbuilding is struggling to reschedule its 3.8 trillion won ($3.4 billion) debt accumulated over the last few years as losses mounted. All but one of its creditors, including the National Pension Service, agreed with Korea Development Bank's debt-to-equity swap plan. The corporate bondholder that opposed the plan took it to the Supreme Court, where the case is pending.

The Arctic development project has drawn attention from many countries, including the U.S., Canada, China and Russia.

Daewoo Shipbuilding CEO Jung Sung-leep said in a statement: "We believe that we will be the biggest beneficiary from the active development of the Arctic thanks to our high technology in ships navigating the area."

Hyundai Samho Heavy Industries, an affiliate of Hyundai Heavy Industries, also sees opportunities in Russia. The company said last month that it had set up a 49-51% joint venture with Russian military shipbuilder Zvezda. Hyundai Samho plans to build crude oil tankers from next year.

"The joint venture is part of Russian President Putin's plan to build ships which will carry energy sources from the Asia," said Lim Yoon-seon, a Hyundai Samho spokesperson. "We offer our knowhow."

The company said its relationship with Russia will give it a new income source. In February, Hyundai Samho won a contract to build four 114,000-ton LNG tankers from Russian state shipping company Sovcomflot.

Hyundai Heavy Industries Group announced last week that it has already met 51% of this year's target for contracts. According to the group, Hyundai Heavy Industries, Hyundai Mipo Dockyard and Hyundai Samho Heavy Industries won shipbuilding contracts worth $3.8 billion in the first five months of this year, up from just $1 billion a year ago.

Analysts say South Korean shipbuilders should expand their reach. "Russian businesses will help local shipbuilders expand their shipowner pool," said Choi Jae-hyung, a Nomura analyst. "But it remains to be seen how much these could contribute to their performance."

Shares in Hyundai Heavy Industries inched up 0.29% to 174,500 won on Monday, rebounding from a 2.52% drop on Friday. The benchmark Kospi slipped 0.13% to 2,368.62, after hitting a fresh record high of 2,371.72 on Friday. Daewoo Shipbuilding's shares have been suspended since July last year over allegations of accounting fraud.

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