Shipbuilders lose foreign deals

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Shipbuilders lose foreign deals

Korea’s financially troubled shipbuilders just can’t catch a break.

The total third-quarter losses for the nation’s big three - Hyundai Heavy Industries (HHI), Daewoo Shipbuilding & Marine Engineering (DSME) and Samsung Heavy Industries - increased by 313.8 billion won ($275.3 million) from the 1.81 trillion won reported last week due to foreign clients canceling orders, according to industry data released Thursday.

The nation’s leading shipbuilder, HHI, initially reported an operating loss of 678.4 billion won for the quarter, but said later that the figure worsened to 897.6 billion won. The additional losses were due to Norwegian client Fred Olsen Energy terminating its contract to build a semi-submersible drilling ship on Sept. 27, citing delivery delay. HHI won the contract in May 2012 for $620 million, and the ship was scheduled to be delivered in March this year. It was delayed to December due to design changes demanded by the Norwegian client.

“We have requested mediation from the London Maritime Arbitrators Association,” said a spokesman of HHI. “There is nothing else we can do for now but wait. It will take one to three years to get the results.”

HHI’s affiliate, Hyundai Samho Heavy Industries, also got bad news from U.K.-based Seadrill in September, which canceled a 2012 order to build a semi-submersible oil drilling rig worth 670 billion won.

Among the three, Samsung was the only company to initially report an operating profit in the quarter, with 84.6 billion won. It boasted in a statement that its efforts to improve profitability like lowering production costs had paid off, but the joy didn’t last long. On Wednesday, it revised its performance records to reflect an operating loss of 10 billion won due to U.S.-based Pacific Drilling canceling its contract for a drill ship last month, also due to delivery delay. Samsung is contesting, saying it completed the job before the Sept. 27 deadline and has a certificate from classification DNV-GL to prove it, but Pacific Drilling is currently refusing to pay.

DSME also recently got bad news from client Maersk Group, the world’s biggest shipping company. In June, DSME and Maersk signed a contract to build 11 container vessels with capacities of 19,630 twenty-equivalent units (TEU). The agreement included the option to build six additional container ships, but Maersk recently told the shipbuilder it won’t do so.

HHI was similarly disappointed with Maersk. When the two signed a deal for nine 14,000 TEU-capacity vessels in July, Maersk added the option of eight more ships to the order, but it recently told HHI that it wouldn’t be exercising that option, either.

DSME said the cancellation won’t impact its balance sheet since it wasn’t previously included as a profit.

Still, it doesn’t bode well that a big shipping company like Maersk is reducing its orders, largely due to plunging international oil prices.

Korea’s shipbuilders have said they are focused on shipbuilding in response to the damage they incurred from a series of risky offshore plant deals that went bad. Maersk is considered one of their biggest clients, having ordered more than 100 ships from HHI and DSME.

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