STX Faces Financial Crisis

South Korean firm STX Offshore & Shipbuilding, only recently the world's fourth largest shipyard operator, has informed its employees that it faces liquidation if it can't make substantial changes.

Local media quote an internal message from the company's CEO, Lee Byung-Mo, saying that “if we operate our company the way it is without special countermeasures, we will be short of funds worth hundreds of billions of won in the next three years. The company will face a crisis at the end of this year and collapse in the first half of 2016.”

Its core Korean yards have experienced revenue pressure from unprofitable deals brokered before 2013 and from penalties paid to shipowners from late deliveries. It has received billions of dollars in loan assistance from its creditors over the past two years, but that has not stopped it from slipping into the red. It posted steep losses in 2014 and in the first half of 2015.

Analysts forecast cashflow problems next year as STX begins construction on additional loss-making vessel orders already booked and as the potential rises that shipowners will cancel orders and ask for a deposit refund. 

The yard is expected to cut back on facilities and labor by one quarter and to refocus on midsize tankers, eliminating its businesses in custom, special purpose vessels and platforms.

Its imminent financial collapse threatens at least $3 billion in investments by state-owned Korea Development Bank. South Korean financial regulators have suggested that a default by multiple yards could pose a systemic risk to the country’s economy, and are pushing shipyard mergers and restructuring plans to head off this threat. Chinese regulators are also pushing large-scale consolidation in the Chinese shipbuilding sector. 

STX’s Chinese subsidiary, STX Dalian, fell into receivership in 2014 after failing to meet a deadling for a restructuring plan. A judge ordered the sale of its assets in March. While the court managed to sell off several of the yard's ships, the STX Dalian shipyard went to auction three times without receiving any bids. Media report that STX Dalian owed creditors a combined $3.8 billion, including $75 million in unpaid wages.