Posted on July 26, 2016
By Xiaolin Zeng, East Asia Correspondent
South Korean shipbuilder STX Offshore & Shipbuilding, which applied for receivership on 27 May, is worth more as a going concern than if it were to be liquidated.
An interim report by EY Hanyoung, which was tasked to carry out due diligence on STX O&S, showed that the shipbuilder is worth KRW1.26 trillion (USD1.1 billion) as a going concern, while its liquidation value is KRW947.3 billion.
EY Hanyoung also gave good assessments to STX O&S in terms of its shipbuilding technologies.
The auditor’s assessment would boost the likelihood that STX O&S can continue to operate under the Seoul Central District Court’s administration.
EY Hanyoung is expected to submit its final report in August, while STX O&S is supposed to produce a rehabilitation plan by 9 September.
Once the fourth largest shipbuilder in South Korea, STX O&S began voluntary restructuring after incurring more than KRW1 trillion in debt in mid-2013, but despite KRW4 trillion of injections from its banks, the shipbuilder’s financial health has been deteriorating.
The shipbuilder’s predicament happened around the time the entire STX chaebol encountered the financial troubles that brought STX Pan Ocean into receivership (from which it emerged in early 2015 after a buyout by poultry processor, Harim Group.)
Formerly known as Daedong Shipbuilding, the latter was in receivership when STX’s founder, Kang Duk-soo, acquired and renamed it in 2001.
STX O&S’s woes stemmed from taking cut-price orders to compete for contracts, which sapped its liquidity and left it unable to compete effectively against larger, more established South Korean shipbuilders.
The downturn in the freight market has cut orders and, although STX O&S has won some product tanker orders over the last two years, these failed to stem the deterioration in its liquidity.
In the first quarter of 2016, STX O&S posted a net loss of KRW118.2 billion, up from KRW17.6 billion in the same period of 2015.
STX O&S’s equity, which was already in negative levels, has worsened to negative KRW2.85 trillion as of 31 March 2016, casting further doubt on its ability to pay off its debts.
The shipbuilder now owes KRW7.3 trillion, of which KRW4.4 trillion are long-term liabilities. Due to this, STX O&S’s banks feel there is no point in the continuation of the shipbuilder’s reorganisation efforts, which included shedding 800 of 2,600 jobs by June 2016. STX O&S’s yards in Busan, South Korea; and Dalian, China; were shut down in the process, leaving the Jinhae yard to fulfil its orders.
Following a debt-for-equity swap, STX O&S is 97.46% owned by its creditor banks. KDB holds 48.15% in the company and other creditor banks are NH Bank, Export-Import Bank of Korea, Woori Bank, Shinhan Bank, and Korea Exchange Bank.
