South Korean shipbuilders exposed to Russia-related Risks

South Korean shipbuilders’ contracts with Russia are being mentioned as a factor that may hinder their profitability improvement. They are aiming to turn a profit next year, but any payment failure on the part of Russian shipowners may delay the schedule. At present, contracts with Russia total US$5 billion in Samsung Heavy Industries, US$2.5 billion in Daewoo Shipbuilding & Marine Engineering, and US$550 million in Hyundai Samho Heavy Industries.

The shipbuilders already met more than 70 percent of their goal for this year, but they are likely to remain in the red this year. This is because hardly profitable projects have continued for about 10 years and the prices of raw material such as thick plates are rising rapidly these days.

Hyundai Samho is relatively free from the concerns related to Russia as its contract with Russia is smaller and the contract is for building an LNG ship, which can be easily sold to another shipowner.

On the other hand, the contracts of Samsung and Daewoo are LNG icebreaker contracts and these vessels cannot be easily resold in the event of contract cancellation. Although Samsung’s investment is still small after its contracts were signed recently, Daewoo was already notified of cancellation for two vessels.

Source: BusinessKorea