Korean Shipping messenger A collection of articles and daily news for the shipping industry with focus on the Korean shipping and shipbuilding markets.

18 February 2010

Shipbuilding News

Emergency operations to the fore There was also speculation that the statement may have As ship financing market is forecast to take a direct hit from referred to the third in a series of four 6,500 teu financial crisis in Europe, Korean shipbuilding industry is newbuildings contracted by French carrier CMA CGM in getting into emergency management system. 2006.

An official from Daewoo Shipbuilding & Marine Engineering Heavy confirmed that a contract had been revoked (DSME) said, "We secured KRW 1trn (USD 874.5m) of in a statement to the Korea Stock Exchange in Seoul cash liquidity by loan from banking industry recently." Wednesday. The company said the vessel was worth Won116.1bn ($101.6m) but did not disclose the name of It is for preparation for the negative projection of the customer. shipbuilding industry that depression will last longer than expected, even after the end of the next year. Insiders said Hanjin Heavy was in negotiations to sell the 6,500 teu vessel to another owner “for a good price”, Prior to this, Heavy Industries issued KRW although no details had yet been confirmed. 700bn in corporate bonds last year for the first time in seven years. This development comes nearly a month after Hanjin Heavy annulled the contract for the second in the series decided to relocate workforce ordered by CMA CGM, the CMA CGM Kessel, when the from shipbuilding division to other divisions due to French line was unable to pay the outstanding balance due. shrinking workloads, and operation of dock no. 4 at Ulsan shipyard was temporarily stopped as all works will be Hanjin Heavy later sold the ship for around $41m to exhausted next month. interests linked to Greek shipowner George Economou and the ship, renamed Miramarin, was chartered last week Even the completion of Gunsan shipyard has been to Mediterranean Shipping Co for 12 months at $12,250 a deferred which was supposed to start operation in earnest day. Brokers said that ship attracted plenty of interest, with next month. up to 10 buyers in the bidding. But some potential buyers who were approached by the shipyard turned down the Hanjin Heavy Industries & Construction (HHIC) will opportunity to buy the ships on the grounds that they were rearrange businesses in both domestic and overseas still over-priced, given current market conditions. facilities. Subic shipyard in the Philippines will be the base for low-priced ship building as labor cost is lower there, The remaining vessels in the series are the CMA CGM even one tenth level of domestic facility's. Lamartine and the CMA CGM Maupassant.

And Youngdo shipyard in , , will be CMA CGM indicated that it still hoped to complete the renovated as a high value-added ship building yard. purchase of the third vessel, saying in a statement that “discussions are on-going with Hanjin for the delivery of HHIC embarked on restructuring program including cutting this 6,500 teu vessel”. labor forces of production in domestic shipbuilding sector by 30% at largest within this month, however, they are Industry sources said CMA CGM would take delivery of the facing opposition of labor union. last one in the four-ship series after agreeing to make the final payment of around $40m for the vessel. The French Korean shipbuilding companies are seeking every kind of liner company took delivery of the first ship in the series, strategy to survive this global economic recession. the CMA CGM Corneille last year.

Hanjin cancels another 6,500TEU One Seoul-based analyst said that while the latest contract cancellation was “not immediately positive” for Hanjin South Korean shipbuilder Hanjin Heavy Industries & Heavy, the shipbuilder “should be able to sell it as they did Construction has cancelled another containership order in the last cancellation”. a further display of strong arm tactics as its customers struggle to pay for vessels ordered during the boom times. Hanjin Heavy will “also receive the final payment estimated at $40m from CMA CGM” for the final vessel in the series. The latest cancellation is understood to be Fourth Ocean, a 6,500 teu vessel ordered by Islamic Republic of Iran The analyst added: “So in the end, Hanjin Heavy’s hardball Shipping Line, which is still waiting to be delivered months tactics are working out well as it is receiving all the cash it after completion because of financing problems. is due.” CMA CGM, battling to salvage what it can of its huge Most of small-and medium-sized shipbuilders over- orderbook in the face of loan-to-value breaches and invested in their facilities and jumped into new businesses demands from banks for additional equity to pay for the after they got the increased orders for ships in the market newbuildings, has already said it wants to cancel a series boom in the mid and late 2000s. So their solutions to the of 3,600 teu ships on order from Hanjin's Subic Bay crisis have to be different from those of their big shipyard, but there has been no news about what progress counterparts. For those who are struggling with the has been made. delivery delays and balance payment delays even after they got orders, it is urgent to get financial supports. Shipbuilders ‘Revamping’ A high-rank official at the Korean Ministry of Knowledge The recent topic brought up in shipbuilding industry is Economy said, “The government will lay out detailed revamping. Big shipbuilders are trying to secure the measures at the end of this month to relieve the pains of competitiveness to overcome the recession through companies with relatively sound managerial condition, business diversification and small-and medium-sized ones except for the small-and medium-sized ones which are in through focusing on specialized ship types. the process of Fast Track, a prompt support measure.”

The shipbuilding sales of Hyundai Heavy Industries (HHI), Some are calling for the government help to speed up the the world No. 1 shipbuilder, have decreased to 30% level restructuring in shipbuilding industry. Lim Jae-muk, a of its total sales for the first time in its history. researcher at KDB Research Institute, pointed out that the government needs to save some small-and medium-sized shipbuilders with a hint of survival through mergers and Instead of the decrease in the shipbuilding sales which acquisitions and get rid of small shipbuilders with no hope. once took up over half of the total sales, the sales created The government revealed that it would induce small from new business divisions including offshore plant and shipbuilders to convert their facilities into other businesses wind-power generation continue to grow. like repair, ship-block factory, and offshore wind turbine and sea leisure businesses. But in reality, there has been An official at HHI said that the company will continue to no case of the conversion. decrease the sales proportion in shipbuilding division and build up the stable business portfolio. It is important for the small-and medium-sized shipbuilders themselves to try hard to secure the competitiveness. Lim which won the order for a said, “As for shipbuilders of middle standing, they should cruiseship at the end of last year for the first time in Korea find the ways to survive focusing on certain ship types in plans to foster the offshore plant business including accordance with their own technology level.” One good cruiseship and drillship as new growth engine. example of this can be found in SPP Shipbuilding. The shipbuilder has specialized in building 50,000-dwt class Daewoo Shipbuilding & Marine Engineering is pouring its product/chemical carriers and penetrated into the niche energy into developing new business like thermal-power market between big shipbuilders and Chinese ones with generation facilities that do not emit CO2. price competitiveness.

These kinds of efforts to revamp themselves and to find Korean technology leakage out new businesses are much needed but they need to make more efforts to heighten competitiveness in their Korean shipbuilders boasting the best technology in the shipbuilding business in order not to be overtaken by world show their lack of security management to protect Chinese rivals. their technologies.

Take Japan: in the 1990s, Japan restructured its Poor security system and moral laxity of some ship shipbuilding industry and by doing so, it mistakenly designers result in a huge hole in the security for Korea’s reduced the supply capacity greatly. So in the 2000s, cutting-edge shipbuilding technology. Japanese shipbuilding industry had to yield the top position to Korea. These kinds of activities hurting the security threaten the existence of shipbuilders and ultimately can be a factor to Bae Young-il, a senior researcher at Seoul-based degrade the competitiveness of country’s shipbuilding Samsung Economic Research Institute, said, “To take the industry which is regarded as a prop for Korean economy. initiative in developing higher value-added vessels grafted with eco-friendly technology that Chinese rivals cannot A ship designer identified the last name as Kim who was follow, it is not recommendable to reduce the investment in arrested for leaking the drawings of 50 50,000-ton ships R&D.” siphoned off the drawings containing valuable core technology from the shipyard at which he had worked for a Small-and medium-sized shipbuilders are the one who are year and a half. Kim logged onto a company’s official faced with real crisis. computer more than 10,000 times by using the password the company gave to him and stole the drawings. But until Hong Seong-in, a researcher at Korea Institute for then, the company is said to have not aware of the severity Industrial Economics & Trade (KIET), said, “Large-scale of the incident. shipbuilders are expected to smoothly overcome the crisis through the business diversification. But the problem is the The problem is that other Korean shipbuilders also give smaller ones which have slim chance that could survive their ship designers the passwords to access to the the crisis with short-term financial supports.” companies’ confidential information. Although shipbuilders lift the passwords, check the track of the accesses to their business secrets, and carry out ex post facto checks, still it building higher value-added vessels worth billions of dollar is not enough to prevent the technology leakage. was leaked out by some retirees and brokers. And the technology related to core parts like ship engines and to In addition, there are numerous cases in which the special ships like deep-sea drillships and LNG carriers designers take out the business secrets like core were leaked out by companies’ officials and Chinese ship shipbuilding tech and equipments-manufacturing tech with inspectors who had been dispatched to a Korean shipyard. them when they move to other rival shipyards or leave the company they belonged to. An official from shipbuilding industry said, “If Korea’s key shipbuilding technologies are leaked out particularly when An official from shipbuilding industry said, “The tech Chinese shipbuilders fiercely try to overtake their rival leakage happens especially when the designers move to Koreans, national competitiveness in shipbuilding sector as other companies with higher pays and retire to set up a well as the very existence of the involved companies are new company for their own.” badly impacted. Therefore, it is urgent to set up a potent security system in order to fend off the leakage crimes.” Recently, the leakage of shipbuilding-related technology continued. Last year, the state-of-the-art technology for

Shipping & Business News

Busan, new hub of ship financing Also he said that he will concentrate on settling substantial contents of this special finance zone and getting legal Busan city of Korea brightens the possibility of takeoff as a guarantees by persuading the authorities concerned for the marine & specialized financing derivatives hub with its next one year. successful inducement of first outside financial institution after one year since Busan was designated as a financial CEO Kim described the outlook of ship fund market as centre recently. "annihilation" and said "Once financial crisis of Europe comes, world economy will go crazy again and ship fund Busan city and Korea Marine Fund Corporation (KOMARF) will be damaged accordingly" However, he stressed on the signed an MOU for development of Busan city as a ship necessity of short and long term countermeasures at this fund centre; Busan will provide administrative supports and time, mentioning that shipbuilding rivals Japan and China KOMARF planned to move its headquarter to Busan in have been making constant support for their shipping and 2012 to expand and develop as a specialized ship fund shipbuilding industry backed by their own abundant funds. institution. DryShips inks 76K BC pair Kim Yeon-sin, CEO of KOMARF, said in an interview with Seoul Economy Newspaper on Feb. 16th that "Major DryShips has inked orders for two panamax bulk carriers in foreign ship fund banks virtually withdrew from ship market China after biding its time about dipping into the company’s damaged by huge losses after global financial crisis in large war chest for acquisitions. 2008. Domestic shipping and shipbuilding industries turn to foreign finance up to 60% of USD 30bn necessary finance The Athens-based bulker and deepwater drilling company every year, hence we felt the necessity of ship fund based only identified the builder as “a top quality Chinese on pure private capital to fill in financial gap of domestic shipyard”. shipping and shipbuilding industry." The two 76,000 dwt vessels have been contracted for a KOMARF decided to establish a pure private ship fund price of $32.3m each for delivery in the last quarter of 2011 institution in Busan given KOMARF's experiences and and first quarter of 2012. Busan's passion for shipbuilding industry and favorable market condition with low entrance barrier. Nasdaq-listed DryShips said the ships were, in effect, replacements for two older panamaxes it has just sold. CEO Kim explained that "We are in the process of making amendments of company articles including changing name The company will book a $2.3m loss on the sale of the from Korea Marine Fund Corporation (KOMARF) to Korea 1996-built 70,349 dwt Iguana, which was sold for $23.4m Ship Fund" And added, he will start business with good and delivered to its new owners last month. quality operating funds by raising KRW 100bn ($87m) from existing shareholders and new shareholders such as But the $20.1m sale of the 1994-built, 71,862 dwt Delray members of Busan Chamber of Commerce & Industry and will result in a book gain of $11.5m, it said. Busan Bank. The newbuilding price looks competitive when compared He asserted that the same convenience level as Singapore with a provisional deal for two existing modern panamaxes and Hong Kong must be guaranteed for financial that DryShips walked away from last November, transactions made within, tentatively called, Busan apparently sensing a further tumble in prices. Munhyeon-dong special finance zone since this business is a part of huge vision that Busan city will be a global ship That agreement had priced the two 76,000 dwt vessels, fund central city. said to have been Cido Shipping’s Fortune Ocean and Fortune Princess, at an average of nearly $38m per ship. Terminating the acquisition at no cost, DryShips had said it The analyst also expects ultra-deepwater semi- could not secure period charters in the agreed time frame submersible rates to fall to $400,000 per day in 2011 and to consummate the deal. 2012, down from last year's $521,250. He expects the units to bring in an average of $435,000 per day. Chairman and chief executive George Economou said the company had been “patient for potential acquisition Fugro lands NGH exploration job opportunities”. UK Company Fugro Well Services is to carry out a six- Taken in tandem with the sale of the two panamaxes from week drilling program in the East Sea off South Korea the fleet, the company calculated it will be buying each starting on April 1 to explore the area’s natural gas hydrate new replacement ship/year for an average price of (NGH) reserves, South Korea’s Ministry of Knowledge $700,000. Economy has confirmed.

This was lower than the low cycle per ship/year price of Fugro plans to deploy the 2009-built, 4,400 dwt drillship $800,000, it said. Fugro Synergy to carry out the $37m exploration contract, which will end on May 15. “Our banks continue to demonstrate strong support as the loan amounts for the two vessels sold are available to the The ministry said the program involved drilling 32 company and can be applied to replacement vessels,” Mr boreholes in the Ulleung Basin, which lies south of Ulleung Economou said. and Dokdo islands and north of the Korea Strait.

“We will continue to be patient with our investments as the This latest exploration activity follows an initial drilling market presents further opportunities.” contract carried out in November 2007, which estimated the area contains up to 600m tons of gas hydrate — Drillship rates gloomy enough to meet South Korea’s demand for natural gas for 30 years. A Dahlman Rose analyst said Tuesday that he now expects ultra-deepwater drillship rates to fall to $400,000 The ministry said it wanted commercial production of the per day next year. gas reserves to start in 2015 in an effort to reduce the country’s reliance on gas imports from Southeast Asia and Omar Nokta, who follows shipping and offshore stocks for the Middle East. the New York investment bank, also downgraded shares of Transocean Ltd and Diamond Offshore to "hold" from "buy". Fugro Well Services said its contract had been placed by Korea National Oil Corp and involved drilling and coring at The analyst's reduced forecast for drillships capable of 10 sites. depths of 2,290 metres or more comes after John Fredriksen's Seadrill revealed a fixture last week at a The company said accommodation and laboratory facilities disappointing rate. would be added to the deck of the Fugro Synergy to allow South Korean and other international scientists to analyze Oslo-listed Seadrill inked a $350m charter of the the cores immediately on recovery. newbuilding 10,000-ft West Gemini for two years off West Africa.

Nokta says the rate equates to $445,000 per day, which is "considerably weaker than expected." Last year, ultra- deepwater day rates averaged $521,250 per day.

Oilfield operators, the analyst explains, are winning the battle ahead of growing drilling unit availability.

"With oil companies taking their time in awarding new contracts, they appear to have tested drilling contractor resolve," he said. "Considering Seadrill has been regarded as one of the toughest negotiators, we believe there is risk for much lower day rates for the 5 remaining ultra- deepwater rigs available this year and the 25 available next year."

Nokta estimates ultra-deepwater drillship rates will average $435,000 per day this year and $400,000 in 2011 and 2012.

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