South Korean shipbuilder Samsung Heavy Industries (SHI) told IHS Maritime that it has not made any decision as to whether it will take over the management of mid-tier shipbuilder Sungdong Shipbuilding & Marine Engineering.
The South Korean media has reported that Sungdong’s major shareholder and creditor Export-Import Bank of Korea requested SHI to run the indebted shipbuilder. The bank, which holds a 71% stake in Sungdong, would continue to provide it with financing and SHI reportedly has a choice of acquiring the shipbuilder after two years.
Founded in 2001, Sungdong suffered continuous losses after the global financial crisis, has been making a recovery in terms of new orders, winning a good number of product tankers and bulkers.
It now has an order backlog of 1.86 million cgt, the world’s ninth largest.
In 2013, Sungdong delivered an 8,800 teu container ship and an FSO vessel.
As at end-2014, Sungdong’s debt exceeded its assets by KRW1.2 trillion (USD1.02 billion).
However, shipbuilding analyst Han Young-soo of Samsung Securities said there are few synergies in any alliance between SHI and Sungdong.
He said, “Firstly, as the two shipbuilders’ vessel mixes do not overlap meaningfully, cost savings would likely be minimal.”
As Sungdong’s flagship bulk carriers and product carriers (not SHI specialties) are categorised as low value-added vessels, thus competition with Japanese and Chinese players would be inevitable in the long term.
Also, global orders for bulk carriers plummeted 93% year on year in the first half of 2015 after the Baltic Dry Index fell to a historic low.
In April this year, SHI announced that it was mulling constructing a shipyard overseas to give its facilities in Geoje, South Korea, the chance to focus on large and high value-added vessels. At that time, however, the most likely location was somewhere in Southeast Asia, where labour costs are cheaper than in South Korea.
Han believes that if SHI accepts the management role – but not the later acquisition – the impact on SHI shareholders will be limited provided the deal is confined to management advice and the co-purchase of equipment.
“Acquiring Sungdong, however, would be negative in the long term, as it would be tantamount to conducting a capacity expansion in the low-value-added segment at a time when the shipbuilding industry is struggling,” concluded Han.
This post was sourced from IHS Maritime 360: View the original article here.
