STX Shipbuilding likely to face court receivership

Creditor banks said they have begun discussing whether to put Korea’s midsized shipbuilder STX Offshore & Shipbuilding under court receivership, as their years of financial aid have failed to improve the shipyard’s business prospects.

Leading creditor Korea Development Bank said Wednesday the creditors agreed to put an end to the shipyard’s self-rescue plan and to decide on whether to put the company into the hands of a court by the end of this month.

“Creditors have concluded that the company going bankrupt in late May is inevitable. Creditors have found no reason to continue the self-rescue scheme and further provide additional capital,” KDB said in a statement, after a meeting with other creditor banks including Export-Import Bank of Korea, NH NongHyup Bank and Korea Trade Insurance Corp.

“Creditors will finalize the decision by the end of May,” it said.

Putting STX Shipbuilding under court receivership requires more than 75 percent agreement among the creditor banks. KDB holds a 48.15-percent stake; NH NongHyup, a 22.6-percent stake; and Ex-Im Bank, a 14.1-percent stake, as of the end of March, according to a filing by STX Shipbuilding.

STX Offshore & Shipbuilding, once the nation’s fourth-largest shipyard under the now-defunct STX Group, went into a debt restructuring program with the creditors in April 2013 after its overstretched business expansion and liquidity crunch coincided with a continued slump in the shipbuilding industry.

For the past three years, the creditors have pumped a total of 4.5 trillion won ($3.8 billion) into the cash-strapped company to help it survive. However, STX Shipbuilding’s losses continued, hitting 314 billion won in operating losses in 2015, following 303.9 billion won in losses in 2014 and 1.5 trillion won in losses the year before.

KDB said while STX Shipbuilding needs an additional 0.7-1.2 trillion won to build preordered ships, it will face a huge loss from the lack of new orders even if it receives the payment for construction of the remaining ships.

Park Moo-hyeon, an analyst at Hana Financial Investment, said STX Shipbuilding’s 2008 decision to invest 3 trillion won to construct giant shipyard STX Dalian in China was critically wrong.

“STX should have never entered there in the first place. It was a completely wrong decision. It cost a huge amount of money, without producing any meaningful result,” Park told The Korea Herald.

“The second mistake was to get involved in the cruise business, in which the company did not have much of a competitive edge,” he said.

With STX Shipbuilding’s fate leaning toward court receivership, the nation’s top financial regulator hinted at the government’s stronger push for the restructuring of midsized shipbuilders.

Financial Services Commission chairman Yim Jong-yong told reporters that the restructuring of midsized shipbuilders “could be carried out promptly as industry-wide due diligence (by creditors) was ongoing.”

Park at Hana Financial criticized the government for targeting midsized shipbuilders instead of the top three players in corporate restructuring, saying smaller shipyards have performed better than big ones in the past two years in terms of delivery.

The number of ships delivered from five midsized shipbuilders rose 50 percent this year to 132, while the total delivery number of all Korean shipbuilders rose 19 percent to 394, according to Park. The five small players are Daehan Shipbuilding, Daesun Shipbuilding & Engineering, Sungdong Shipbuilding & Marine Engineering, STX Shipbuilding and SPP Shipbuilding.

The big three – Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering – are reportedly to sell some of their floating docks to cut costs to survive amid the drying up of new ship orders. They have submitted self-rescue plans to their creditors, including asset sales and layoffs.

By Kim Yoon-mi (yoonmi@heraldcorp.com)