Daewoo Shipbuilding may lose a secured order.

2017-04-10 09:00

Because some bondholders have yet to decide whether to support the bailout plan offered by Daewoo Shipbuilding's creditors, the current uncertainty surrounding Daewoo Shipbuilding may negatively impact its upcoming two new shipbuilding orders.

According to South Korean media reports, the South Korean government will decide in mid-April whether to provide new financial support to Daewoo Shipbuilding. Until then, Daewoo Shipbuilding's fate is uncertain. If the debt-to-equity swap plan fails to gain the consent of all stakeholders, Daewoo Shipbuilding will enter court receivership.

Industry insiders worry that the current uncertainty surrounding Daewoo Shipbuilding may affect its order intake. Daewoo Shipbuilding was originally scheduled to sign two new shipbuilding orders at the end of March and in April. However, ship owners have postponed the signing of the contracts to observe the future development of Daewoo Shipbuilding.

It is understood that Daewoo Shipbuilding is currently negotiating with Greek ship owner Maran Tankers Management for an order of 3 Very Large Crude Carriers (VLCCs) with a capacity of 300,000 deadweight tons. This construction contract was originally scheduled to be signed in March, with a value of approximately US$250 million.

In addition, in early February this year, Daewoo Shipbuilding signed a letter of intent with US company Excelerate Energy for 1+6 floating liquefied natural gas (LNG) storage and regasification units (LNG-FSRUs) with a capacity of 173,400 cubic meters. The two parties were originally scheduled to sign a formal construction contract in April, but the outlook for this order will also be affected. According to International Ship Network, Daewoo Shipbuilding is currently negotiating the detailed terms of this FSRU order with Excelerate Energy, including the contract price. Considering that the current market price for FSRUs is approximately US$230 million per unit, if all the optional contracts are activated, Daewoo Shipbuilding is expected to receive an order worth US$1.6 billion.

However, once Daewoo Shipbuilding officially enters court receivership, it will be difficult for Daewoo Shipbuilding to finalize formal construction contracts. Over the past two months, Daewoo Shipbuilding has been striving to secure overseas orders in an attempt to overcome its liquidity crisis. Daewoo Shipbuilding Chairman Chung Sung-rip even personally visited some long-term cooperating and mutually trusted client companies to seek new orders, as obtaining advance payments from new orders is the fastest way to solve the funding problem.

The likelihood of Daewoo Shipbuilding applying for bankruptcy protection is increasing.

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