Following troubled construction firms and savings banks, the government and creditor banks are now moving to put small-and medium-sized shipbuilders under the microscope for drastic restructuring. The preemptive restructuring is to minimize chain reaction bankruptcies of once-booming small-and medium-sized shipbuilders, suffering from cash flow problems in the wake of the global financial market turmoil. Analysts say that large shipbuilding firms will ride out the current difficulties, as they have ample cash holdings and enough orders for the next several years.
But smaller ones are in serious trouble, as it has become almost impossible for them to borrow money from financial companies amid deteriorating global business conditions. About half of some 300 small shipbuilders here are expected to go belly up through the first half of next year, unless bailout steps are taken, analysts said.
A group of creditors are now looking to introduce an industry-wide restructuring program for struggling small shipbuilders. Under the scheme, shipbuilders will enter into an agreement with creditor banks if they want to have their debts rescheduled or receive new loans. But in return, companies will be required to sell assets and take a range of self-rescue measures in a bid to stay afloat. Banks will then screen each firm and provide necessary financing to viable firms but stop extending credit to nonviable ones.
It has become almost impossible for small shipbuilders to obtain refund guarantees (RG), which they need to receive orders from shipping companies, from banks as domestic lenders have strengthened their risk management and became reluctant to extend credit to small firms. Banks currently only provide RG to cash rich large shipbuilders.
Analysts say it is inevitable for the shipbuilding industry to undergo drastic restructuring, adding many small shipbuilders over the past few years have sprouted up along the nation's southern and eastern coastlines on strong demand for bulk ships and other types of marine carriers. Increasing prices of steel and other raw material have begun hitting shipbuilders hard, particularly small ones, chipping away at their profitability.