Shipbuilding shares dumped on declining demand
Park Chang Suk isn't waiting to learn what Daewoo Shipbuilding & Marine Engineering Co will be worth when the South Korean government sells the maker of oil tankers, submarines and ferries this autumn.
The 35-year-old Mr Park, who oversees the equivalent of US$481 million at NH-CA Asset Management Co in Seoul, dumped his shares as orders fell by one-third from January to June and the Seoul-based company cancelled a container-ship contract for the first time in its 35-year history.
State-run Korea Development Bank and Korea Asset Management Corp plan to sell their 50.4 per cent interest in the world's third- biggest shipbuilder for as much as seven trillion won (S$8.86 billion), according to Cho In Karp at Good Morning Shinhan Securities Co in Seoul.
Steel maker Posco and Hyundai Heavy Industries Co last week joined two other companies in making separate offers. The bidding has failed to stir the shares, now at their lowest in five months.
'The shares could move higher on the sale, but for me that's not enough to change my position on Daewoo Shipbuilding,' said Mr Park. 'The shipbuilding industry has already reached its peak. Demand has weakened. Daewoo Shipbuilding is just too expensive.'
Mr Park joins Ki Ho Jin at CJ Asset Management Co in Seoul, a fund manager who helps oversee US$2.9 billion and sold shares of South Korean shipbuilders, including Daewoo. The company is among more than 300 being privatised.
Daewoo 'annulled' a 619 billion-won order from Niederelbe Schiffahrtsgesellschaft mbH, or NSB, for eight container vessels last month because of increasing steel prices, the German shipper said on Sept 2. While Niederelbe's statement said the order wasn't scrapped 'due to lack of money', Daewoo said on Sept 3 'the contract was cancelled because NSB failed to make initial payment'. The cancellation is the biggest to hit South Korean shipbuilders.
Hyundai Mipo Dockyard Co, a unit of Hyundai Heavy, scrapped a 197-billion-won order for four chemical carriers last month after an unidentified European customer also failed to make an initial payment. Builders will likely see new orders decline 40 per cent this year as buyers can't get credit and slowing commodities demand reduces the need for investment in new vessels, Sydney-based Macquarie Group Ltd said on Aug 28.
'Ship financing issues are turning out to be worse than expected,' Macquarie's E S Kwak wrote in the report. He was one of the first analysts to downgrade shipbuilders this year in the wake of the US sub-prime crisis that has squeezed credit markets worldwide. He rates Daewoo 'underperform'.
Shippers ordered US$76.3 billion worth of vessels in the first seven months of 2008, 45 per cent less than a year earlier, according to Clarkson plc.