April 20, 2024

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[THE INVESTOR] The credit ratings of the country’s largest shipbuilders are likely to be slashed unless there is a turnaround in their sales, according to industry sources on Jan. 5.

Ratings agencies are reportedly considering downgrading the top three shipbuilders -- Daewoo Shipbuilding and Marine Engineering, Hyundai Heavy Industries and Samsung Heavy Industries -- unless new orders pick up in the coming months. 

At present, DSME is rated B+, while the other two shipbuilders have a rating of A.

The orders received by the three shipbuilders have plunged since 2015. The figure, which stood at US$54.2 billion in 2013 and US$42 billion in 2014, fell to US$24.3 billion in 2015, and to US$9.1 billion for the first 11 months of last year.

As a result, the companies have faced a liquidity crunch, raising concerns over their ability to repay maturing bonds.

The situation for DSME is most dire, with the Korea Development Bank’s efforts for raising capital coming short of solving its liquidity issues. The KDB-led effort led to a cash injection of 2.8 trillion won (US$2.36 billion). While the move significantly reduced DSME’s debt, it has done little for the company’s liquidity.

The company has over 900 billion won in bonds maturing this year, but its liquid assets stand at about 610 billion won.

For HHI, industry watchers cite the splitting of businesses as the biggest concern. As part of the restructuring measures, the company spun off businesses unrelated to shipbuilding. While the move allowed the company to streamline its operations, pundits say that HHI spun off profitable businesses while taking on the ailing ship and marine engineering divisions.

By Choi He-suk (cheesuk@heraldcorp.com)