KDB Announces Record Loss from Shipbuilding Loans

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By MarEx 2016-04-01 21:17:11

In an announcement Friday, state-run Korea Development Bank (KDB) said that it had posted a loss of $1.6 billion, its largest in nearly two decades, driven by bad loans to shipbuilders and shipping firms.

"The shipbuilding and shipping industries have only deteriorated in past years. We suffered sharp declines in investment gains from those stocks, while setting aside massive loan-loss provisions in case of their insolvency," a KDB spokesman told Yonhap.

The bank's non-performing loans increased to about $6.3 billion last year, up from $2.7 billion the year before. 

KDB said that it remains committed to South Korea's core shipbuilding and shipping industries, and will work with them through restructuring to put them on a path to profitability. KDB is the largest bank creditor of troubled Daewoo Shipbuilding & Marine Engineering and Hyundai Merchant Marine.

On Friday, IHS Fairplay reported that South Korea's former strategy and finance minister has calld for a merger between Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding. The ex-minister, Yoon Jeung-Hyun, told officials at the state Financial Supervisory Service that "the shipbuilding industry and others used to repeat the cycle of boom and bust. From now on, however, one may ask if this pattern will last. It is urgent for an oversupplied industry to be restructured. The number of South Korea's shipbuilding giants . . . needs to be cut down to one or two.”

Yoon warned that continued intervention by state-run KDB could run afoul of international trade agreements, including regulations enforced by the World Trade Organization. Indeed, Japanese authorities have considered the possibility of filing a complaint related to Korean government support for Daewoo, the hardest-hit of the "big three" South Korean shipbuilders. 

Separately, in Italy, specialty and cruise shipbuilders Fincantieri posted a net loss of $300 million for 2015, despite record new orders totalling to $11 billion and an all-time high backlog of $22 billion. 

Fincantieri said that difficulties encountered in building a large number of prototype vessels ordered at low prices contributed to the loss. 

"It is worth recalling that the margins on these vessels, ordered during the new-build construction demand downturn triggered by the global financial crisis, reflect severely depressed prices and that the 2015 order backlog did not yet allow full utilization of capacity in the Italian production facilities. Consequently, given the significant extra costs involved in managing such issues affecting prototype ships, the EBITDA margin of the Shipbuilding segment was heavily penalized," Fincantieri said. 

Looking forward, the firm expects a strong 2016 on the back of a booming cruise industry and a "solid outlook of the naval as well as of the equipment, components and services businesses."