Debts owed by South Korea's three major shipbuilders more than doubled over a period of five years ending in 2015 due to disadvantageous contract terms, according to their business reports Sunday.
The combined borrowings by Hyundai Heavy Industries Co., Samsung Heavy Industries Co., and Daewoo Shipbuilding & Marine Engineering Co. jumped to 23.9 trillion won ($20.68 billion) at the end of 2015 from 10 trillion won at end-2010, the data showed.
Industry analysts said a sharp increase in the so-called "heavy tail contracts" may have contributed to the surge in the shipbuilders' debt load. In a heavy tail contract, an overseas customer that places a ship order with a shipbuilder makes a bigger payment at a later stage of shipbuilding. It means the shipbuilder has to invest much of its own capital to build the ship in the initial stages of shipbuilding.
"As new orders have nearly dried up this year, it will be hard for shipbuilders to refuse to accept any vessel order even if it is a heavy tail contract," said an official from a shipbuilder's creditor bank.
Before the financial crisis came in 2008, shipbuilders used to receive four rounds of payments in even amounts over two to three years until a ship was completed and delivered to the customer.
But in recent years, shippers have paid more than half of their contract money when the ships they ordered were delivered. Some customers have even canceled or postponed their orders due to financing problems, dealing a bigger blow to shipbuilders.
As a result, Daewoo Shipbuilding has come under a creditors-led restructuring. Hyundai Heavy and Samsung Heavy are set to undergo similar debt-rescheduling programs.
Early this week, Hyundai is expected to submit its self-help plans, including a reduction of some 3,000 jobs or 10 percent of its total workforce, to its main creditor KEB Hana Bank. Samsung is also likely to present additional restructuring measures to its creditor Korea Development Bank. (Yonhap)
