Hanwha Ocean's credit rating upgraded by various agencies

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Hanwha Ocean's credit rating upgraded by various agencies

Published: 25 May. 2023, 18:46 Updated: 25 May. 2023, 20:03

A shipyard of Hyundai Samho Heavy Industries [HYUNDAI SAMHO HEAVY INDUSTRIES]

Agencies have recently raised the credit ratings of Hanwha Ocean, owing to favorable conditions in the shipbuilding market and the completion of an acquisition deal with regulatory approval.

Korea Investors Service (KIS), a major credit rating agency in Korea, raised its rating for Hanwha Ocean from "BBB-" to "BBB" on Wednesday, citing the company's improved financial stability achieved through a significant capital increase.

Following KIS's rating upgrade, NICE Investors Service, another major rating agency, revised its outlook on Hanwha Ocean to "positive" from "stable," also citing the company's integration into Hanwha Group.

The credit rating upgrades are aligned with the shipbuilding industry's anticipation of a supercycle arriving earlier than expected, indicating a positive outlook for the domestic sector's sustained growth.

“The third supercycle in the shipbuilding industry could arrive sooner than the average cycle of 30 years or more,” Han Seung-han, an analyst at SK securities said in a note.

“As Korean shipbuilders have begun selective orders for profitability aiming to achieve a turnaround in their financial performance, this year will be the most crucial period since the 2010s,” Han said. “If domestic shipbuilders can maintain a stable order backlog with favorable ship prices and a focus on LNG carriers, along with improvements in their financial performance, they will be able to flourish during the upcoming third supercycle.”

The shipbuilding industry has experienced two significant supercycles since World War II, with the first occurring from 1963 to 1973, driven by global trade expansion and a shortage of ships. The second supercycle took place from 2002 to 2007, fueled by China joining the World Trade Organization and the subsequent surge in global maritime trade and ship demand — also referred to as the golden age of domestic shipbuilding.

However, industry experts have differing opinions on whether the current global shipbuilding recovery signifies the start of the third supercycle. This is because unique circumstances, such as the focus on specific vessel types like LNG carriers and disruptions such as bottlenecks at ports and supply chain disruptions caused by the Covid-19 pandemic, have deviated from previous patterns.

Nevertheless, as the ships delivered during the second supercycle near an average age of 20 years, and stricter environmental regulations are imposed by various countries, there is an increasing demand for ship replacements that could expedite the arrival of the third supercycle.

“Global shipping companies are anticipated to replace aging ships while adhering to the environmental regulations set by the International Maritime Organization,” the note read. “Consequently, the cycle of ship replacement is likely to be expedited, deviating from previous patterns.”

As of last month, data from SK securities revealed that 37.7 percent of the world's operating ships were 15 years or older. By ship types, 47 percent of tankers were "aged," while the proportion was 43.6 percent of container ships, 39.5 percent of LPG carriers, 24.2 percent of LNG carriers and 22 percent of bulk carriers.

Tankers have experienced increased demand relative to supply due to increased sales resulting from the European embargo on Russian crude oil and petroleum products. Substantial orders for tankers are expected to be placed from next year.

Container ships, which are highly responsive to IMO environmental regulations, will witness an inevitable rise in demand for eco-friendly vessel replacements, analysts said. This year, major container carriers are anticipated to opt for methanol fuel.

A steady stream of orders for LNG carriers is expected to be maintained, given the limited building capacity and technological capabilities of domestic shipyards. Industry experts believe Korean shipbuilders will be able to secure an average of 55 new orders for LNG carriers annually until 2027.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]