South Korean shipbuilders aren’t out of the woods yet even as orders begin recovering, with the smaller ones facing collapse in the absence of government support, according to a shipping-debt trader. The government will aid larger shipyards through ways such as giving them orders for the next few years, under its support policy for the shipping and shipbuilding industries, said Soo Cheon Lee, co-founder and chief investment officer of SC Lowy, a Hong Kong-based loan and bond trading firm.
A plunge in oil prices since 2014 has roiled shipbuilders in South Korea — home to the world’s three largest shipyards — as their customers canceled or delayed orders. Among major container shipping companies worldwide, Hanjin Shipping Co., once the largest in South Korea, collapsed in 2016 while others have merged to boost their competitiveness following years of accumulated losses and overcapacity in the industry.
While Hyundai Merchant is still unprofitable, the government is unlikely to allow the company to fail since South Korea needs a flag carrier to provide exporters with flexibility and more options, and it has also seen the negative impact from Hanjin’s collapse, Lee said.
Sources and photo-credits: Bloomberg with assistance by Kyunghee Park, and Kyungji Cho