As part of efforts to cope with the protracted slowdown in the global shipbuilding industry, Hyundai Heavy Industries Co., the world’s largest shipbuilder, has decided to gradually halt operations of underutilized dry docks. The unprecedented move by the South Korean company comes amid a significant drop in the number of shipbuilding orders over the past few years.

On Monday, Hyundai Heavy Industries announced that it has decided to temporarily suspend operations of dry dockyards starting with those suffering from thinning backlog amid a dearth of fresh orders. Industry insiders note that the move is based on the outlook that the prolonged slump in the global shipbuilding industry would continue for a considerable period.

Hyundai Heavy Industries has 10 docks including nine at its Ulsan shipyard and one at its Gunsan shipyard. The company also has an offshore plant in Ulsan, a city located at the country’s southeast end. Hyundai Samho Heavy Industries Co., the world’s fourth-largest shipbuilder that is affiliated with Hyundai Heavy Industries, also has three docks in its shipyard in Mokpo, a city in South Jeolla, while Hyundai Mipo Dockyard Co. operates four docks in Ulsan.

According to multiple sources from the shipbuilding industry, Hyundai Heavy Industries will likely shut down its Gunsan dockyard first that is expected to soon run out of backlogs. Unlike the Ulsan shipyard with two years worth of backlog, Gunsan shipyard is expected to complete building 23 ships by September next year. The Gunsan shipyard, a relatively new shipbuilding factory that began operations six years ago during the heyday period of the global shipbuilding industry, has not yet received sufficient amount of orders to maintain operations.

Other industry sources also note that there is a possibility for several docks operated by Hyundai Samho Heavy Industries and Hyundai Mipo Dockyard to temporarily close as well as those related to Hyundai Heavy Industries’ offshore plant in Ulsan. Concerns are also rising over a potential mass layoff of employees after a series of dock closures. The number of employees working at the Gunsan shipyard, which once exceeded 5,000 including those contractor workers, has dropped to 3,700 recently. Sources note that it would be inevitable for additional workforce reductions.

The country’s biggest shipbuilder, however, is unlikely to see a breakthrough until overall shipbuilding industry conditions improve fundamentally. The shipbuilder is expected to submit a voluntary restructuring plan, including job cuts and the sale of various assets such as residential and commercial buildings in Ulsan, to its main creditor KEB Hana Bank this week at the earliest.

Hyundai Heavy Industries, however, is known to remain reluctant to list Hyundai Oilbank Co., its core asset that could ease financial burden of the mother company. A high-ranking official from Hyundai Heavy Industries who asked to be unnamed said the company is continuing to review an initial public offering of Hyundai Oilbank, but when considering current stock market conditions, the company thinks it is too early to push forward with the plan.

Another high-ranking official from KEB Hana Bank said the creditor is still waiting for the company’s response on additional plans such as division spinoffs. Hyundai Heavy Industries has so far dismissed rumors that the company would spin off non-shipbuilding divisions such as its electro electric systems and construction equipment units. The company’s electro electric systems division that produces transformers and high voltage circuit breakers has raised 2.5 trillion won ($2.13 billion) in sales last year.

By Park Yong-beom, Kim Hyo-sung

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]