Korean shipbuilders call on banks for support

South Korean shipyards are asking state-run lenders to increase loans and extend financing for orders as a deeper-than-expected economic slump dries up their cash holdings, industry sources said. According to the sources, the shipbuilding industry called for the Korea Development Bank and the Export-Import Bank of Korea to increase their financing for shipbuilding orders and extend loans for their operations.

The moves came as the country’s shipyards suffered a sharp drop in shipbuilding orders.

Hyundai Heavy Industries and other shipbuilders received record orders in the past few years on rising shipbuilding demand. But shipbuilding orders have all but vanished since September as declining global trade slashed cargo rates and demand for new vessels. “Some small shipbuilders face a liquidity shortage. Major players armed with ample cash are also set to prepare for further potential difficulty,” an official at Samsung Heavy Industries said.

In the first two months of the year, only Samsung has won a single shipbuilding order valued at $680 million. To compound their woes, shipping lines worldwide reportedly are demanding that orders be cancelled and delivery of new ships be delayed. To cope with vanishing cash reserves, local shipbuilders have recently tapped the local debt market to raise up to three trillion won ($2.17 billion).

“Companies’ cash holdings will continue to drop this year because of the severe economic slump, and their cash flows are unlikely to improve any time soon,” said Lee Jong-woo, an analyst at HMC Securities. “They are preparing for that.”