All 3 shipbuilders float in a sea of red for 2015

The nation’s top three shipbuilders - Hyundai Heavy Industries (HHI), Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering (DSME) - are forecasted to run losses through the end of the year, the first time that all three had unprofitable years at the same time.

The nation’s leading shipbuilder, HHI, is expected to have its second consecutive year of red ink for the first time in its 44-year history.

According to financial institutions and investment houses Monday, the total estimated losses for the three companies this year could be 5.6 trillion won ($4.82 billion). The three already reported 4.7 trillion won in losses in the first half, mainly due to a weak offshore plant business.

Of the 5.6 trillion won in estimated losses, DSME is expected to account for 3.5 trillion won by the end of the year, followed by Samsung (1.5 trillion won) and HHI (600 billion won). Analysts in the financial institutions said the losses could rise to the 6 trillion won level as some offshore plants being built by the companies might not be done on time, which would cost them additional expenses.

“The three companies have reflected most of the losses generated from the offshore plant business in the first half’s balance sheets, but current market condition isn’t good enough to make profits in the second half,” said an analyst. “It is no longer a secret that all three will go into the red this year and the question is how they will stop making additional losses later on.”

DSME claimed it made a 471 billion won profit last year, but the joy didn’t last long as it found massive losses generated from its offshore business that weren’t reflected in last year’s P&L sheet. The company reported its 3.75 trillion won operating loss in the first half and is forecast to have 100 billion won and 300 billion won in losses in the third and fourth quarter, respectively.

Analysts said the losses at the nation’s third-largest shipbuilder could snowball later the year since the company’s major creditors led by Korea Development Bank (KDB) launched an audit to see if there were any unrevealed losses among its affiliates overseas. Financial institutions also said the company will only win about $10 billion worth of contracts this year, which is about $3 billion short of the company’s goal.

DSME CEO Jung Sung-leep held a video conference with about 300 managers on Monday to explain that the company’s retrenchment mode.

Earlier in the year, Samsung Heavy Industries said it might lose 1.37 trillion won this year, adding that most of the loss would be made in the first half since it expects to make 95 billion won in profit in the second.

But industry insiders say that hope will not likely be realized since the company is in the same boat as DSME and HHI. Financial institutions said the company will make a 1.5 trillion won loss this year.

HHI, which reported a 3.25 trillion won loss last year and a 471.9 billion won loss in the first half is forecasted to lose 100 billion won and 150 billion won in the third and fourth quarters.

BY KWON SANG-SOO [kwon.sangsoo@joongang.co.kr]