Shipbuilders face sweeping overhaul

The country’s top three shipyards are readying for restructuring as they deal with a collective second-quarter operating loss of 4.7 trillion won ($4 billion), battered by ailing offshore businesses.

The financially distressed players ― Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering ― are expected to step up slimming efforts in the second half of the year, including merging divisions, offloading noncore assets and suspending investment in new projects.

DSME, which posted a record-high operating loss of 3 trillion won, is estimated to push ahead with the biggest restructuring initiatives among the three, according to market watchers.

The shortfall turned out to be much bigger than the initial expectation of 2 trillion won, and therefore a workforce cut is unavoidable despite CEO Jung Sung-leep’s assurance that “slashing jobs is not an option,” analysts said. DSME currently has a payroll of about 12,600.

“DSME is likely to carry on with a workforce cut targeting executive levels after the main creditor Korea Development Bank’s inspection ends, with the management having vowed to share the blame,” an official from the KDB said, wishing to stay anonymous.

Before the worst scenario clouds the shipbuilder, the company is planning to sell off assets and shares to secure cash. Reducing the number of executives and selling affiliates are next as part of their cost-cutting plans, according to the firm.

“We’re planning to speed up the sale of various assets to be financially stable, before we face liquidity problems,” a DSME official said.

The industry downturn also took a toll on Samsung Heavy, which is joining the move to streamline the organization and cut the number of executives for efficiency.

After posting an operating loss of 1.5 trillion won in the same period, Samsung Heavy said executives will be banned from flying business class on official trips and the company will cut the number of wind-power generation projects.

Hyundai Heavy, whose operating loss came the lowest among the three at 171 billion won, is also pushing ahead with similar plans.

Part of Hyundai’s measures include replacing executives with those in their 40s, a generation shift to overcome the prolonged deficit and poor work performance. Almost half of the 37 newly appointed executives are in their 40s, according to the firm.

On the nation’s main bourse, DSME suffered the biggest stock price fall of 47.8 percent last month.



By Suk Gee-hyun(monicasuk@heraldcorp.com)