이 기사는 2021년 11월 05일 07:26 thebell 에 표출된 기사입니다.

Concerns are growing about Daewoo Shipbuilding & Marine Engineering’s credit profile as the closing of its takeover by Hyundai Heavy Industries Group has been delayed for almost three years pending antitrust approvals from relevant jurisdictions, adding uncertainty to potential synergies from the business combination.

Korea Ratings has recently lowered the outlook on Daewoo Shipbuilding’s BBB- rating from Positive to Stable, citing a long delay in regulatory approvals for its acquisition by Hyundai Heavy Industries. The massive 2 trillion won ($1.7 billion) deal was signed in March 2019.

The company’s financial performance has deteriorated in the past periods. Daewoo Shipbuilding posted a 1.2 trillion won operating loss on revenue of 2.2 trillion won in the first six months of 2021, a sharp decline from a 153 billion won operating profit on revenue of 7 trillion won in the same period last year.

The sluggish performance was largely due to rising steel prices. Although newbuilding orders have increased in the first half of this year, the company is still in the recovery mode from a years-long slowdown in the shipbuilding industry and the impact of the Covid-19 pandemic.

Daewoo Shipbuilding generated a negative free cash flow of over 650 billion won in 2020, resulting in a significant increase in leverage. Its net debt nearly tripled in a year, from 535 billion won at the end of 2019 to 1.36 trillion won at the end of 2020.

Rising interest burden

What is worse is that its future interest burden is expected to increase. Daewoo Shipbuilding’s perpetual bond bought by the Export-Import Bank of Korea is currently paying a 1% interest rate.

But the interest rate is slated to rise to a level of the average 5-year yield starting 2022, with 0.25% added annually onwards. This would increase pressure on the company to repay the hybrid notes.

Daewoo Shipbuilding also has high refinancing needs due to its reliance on short-term debt, which accounts for approximately 2.3 trillion won, or 87%, of the company’s total debt.

With an increase in newbuilding orders, the company is expected to take on more debt in the future to fund working capital needs. It also has five drillships that have not been delivered yet, either because orders were canceled or buyers filed for bankruptcy.

Korea Ratings said, “Given the uncertainty about when the acquisition will be completed, we will reassess potential synergies from Daewoo Shipbuilding’s takeover by Hyundai Heavy Industries Group, which was the primary reason for our Positive Outlook on Daewoo Shipbuilding.” (Reporting by Chan-mi Oh)