Rise and fall of Korean shipbuilding tycoon

The founders of many South Korean conglomerates have led dramatic lives, with resemblance to the domestic economy rising fast from the ashes of the Korean War.

One thing that the business tycoons have in common is the culture of pursuing fast growth, which has contributed to the nation’s rapid rise. Their growth obsession, however, sometimes ends in tragedy.

The latest conglomerate leader to suffer a freefall is STX Group founder and former chairman Kang Duk-soo. 

The nation’s shipping and shipbuilding giant, founded by 66-year-old Kang in 2001, fell apart in 2013 as it was hit by a liquidity crunch, and its key affiliates, including STX Offshore & Shipbuilding and STX Pan Ocean sought restructuring by creditor banks. Following the move, Kang stepped down as leader of the group.

Last week, faltering STX Offshore & Shipbuilding filed for court protection, despite the injection of public funds to keep the shipbuilder afloat.

Industry watchers forecast that the court could opt to liquidate the nation’s fourth-largest shipbuilder, considering falling order backlogs at its shipyard amid a prolonged slump in the global shipbuilding industry.

“Liquidation would mean the end of self-made Kang’s success story, once a legend among salaried workers in Korea,’’ an industry insider said.

Unstopped debt financing for growth

Kang was one of rising stars in corporate circles back in the early 2000s, when the Korean economy gradually recovered from the 1997 Asian financial crisis.

He bought ailing engine maker Ssangyong Heavy Industries in 2000, where he served as the chief finance officer, through debt financing with his partners.

He later took over the entire ownership and relaunched the company under a new name, STX, in 2001 with the vision of transforming it into a global shipbuilder.

Since he took the helm of STX, he has sought “fast’’ expansion via mergers and acquisitions at home and abroad focusing on shipbuilding, shipping and energy to overcome the disadvantages of being a late comer.

In the first three years, he bought Daedong Shipbuilding, Sandan Energy and Pan Ocean Shipping and renamed them STX Offshore & Shipbuilding, STX Energy and STX Pan Ocean, respectively. 

In the early days, there were few problems with leveraged buyouts based on loan financing, as the group made repayments quickly, thanks to the booming shipbuilding and shipping industries.

Kang’s growth formula, however, didn’t work well for the two multibillion dollar overseas projects that the company pushed in 2007, a year before the global financial crisis.

In 2007, STX Group took over Norway’s Aker Yards (currently STX Europe), Europe’s largest shipbuilder specializing in cruise ships for $1.27 billion. Kang was obsessed with the deal as he thought cruise ship-making would be the group’s next growth engine. The company’s first mega overseas deal turned STX into a global player running 18 shipyards in eight countries.

In the same year, STX also completed a shipyard in Dalian, China, requiring investments of more than $3 billion, betting on the growing demand for Chinese ships.

“Looking back, the excessive debt financing for the two projects put a drag on the entire group,’’ a former corporate executive said. 


Burdens on banks

The rise and fall of a business tycoon in Korea is not an individual tragedy. The bank loan-backed deals of STX Group have weighed down the nation’s private and public financial institutions as well.

U.S. credit rating agency Moody’s warned Tuesday that STX Shipbuilding’s court receivership is credit negative for its creditor banks, whose provision charges will surge in the second quarter of 2016. Major credit banks include state-run policy banks Korea Development Bank and Export-Import Bank of Korea, NongHyup Bank, Woori Bank and Shinhan Bank.

According to the company, the exposure of creditor banks to STX Shipbuilding amounted to about 4.7 trillion won ($3.9 billion) in loans and 1.1 trillion won in refund guarantees as of March this year.

By Seo Jee-yeon (jyseo@heraldcorp.com)