Seadrill crisis spreads to battered South Korean shipbuilders
Samsung Heavy, Seadrill in talks over delivery of two ships
SEOUL -- Seadrill's liquidity crisis is deepening problems for South Korean shipbuilders as the debt-ridden Norwegian company shirks from the drill ship orders it had placed, potentially causing losses of hundreds of millions of dollars.
Samsung Heavy Industries said Thursday it was in talks with Seadrill over two drill ships which were supposed to be delivered to the company in March. But delivery of the vessels was delayed at the request of Seadrill. Samsung was paid 30% of the full price for building them, but it is still owed about 800 billion won ($707 million).
"Seadrill will pay the costs of the delay. And we are in negotiations with the company for additional payments," said Koo Sang-ok, a Samsung spokesman.
Daewoo Shipbuilding & Marine Engineering had also received a $1.1 billion order for two drill ships from Seadrill. The shipbuilder has been paid 20% of total costs and was expecting the rest upon delivery in 2018 and in 2019.
Seadrill also canceled a drill ship order to Hyundai Heavy Industries, who was however, able to sell the vessel to another company last month, recouping most of its losses. The company did not disclose figures.
Fears over Seadrill's bankruptcy are mounting even as South Korean shipbuilders are battling their own financial problems. Creditors of Daewoo Shipbuilding are in discussion about how to restructure the debt-ridden company, including the implementation of a pre-packed plan, which means a court receivership combined with a short debt rescheduling program.
Korea Development Bank, Daewoo Shipbuilding's largest shareholder, have asked creditors and corporate bond owners to swap their debt to equity to reduce the shipbuilder's burden. But the National Pension Service, which owns Daewoo Shipbuilding bonds worth 390 billion won, says it is doubtful of the company's financial status and sustainability.
Samsung Heavy is also suffering a drought of orders. It posted a net loss of 138.8 billion won last year, following a 1.2 trillion won loss the previous year due to low demand in the global market.
Analysts say that the weak shipbuilding and automobile industries are weighing on the economy.
"Korea's manufacturing PMI [Purchasing Managers' Index] remains below 50, underperforming those in other economies. This is mainly because of Korea's relative weakness in shipbuilding and automobile sectors," said Kwon Young-sun, an economist at Nomura.
"These two sectors, which have high multiplier effects on other manufacturing sectors, face strong competitiveness, which suggest manufacturing's contribution to Korea's real GDP growth will remain subdued in 2017."
Shares of Samsung Heavy dropped 0.47% to 10,550 won, marking a four-day losing streak. The stock price is nearing a three-month low of 10,200 won reached on Feb. 7. The benchmark Kopsi slipped 0.37% to 2,152.75.
Hyundai Heavy shares have been suspended from trade since March 30 as the company prepares to be re-listed after spinning off its non-shipbuilding businesses. Its shares will resume trade on May 10. Daewoo Shipbuilding shares have also been suspended since September last year due to its poor financial performance.