DSME’s financial future uncertain – Businesskorea

The financial structure of DSME remains uncertain following the cancellation of its acquisition by HHI Group.

As the proposed merger between Hyundai Heavy Industries Group (HHI Group) and Daewoo Shipbuilding & Marine Engineering (DSME) has been cancelled, DSME’s financial structure remains uncertain.

DSME is presumed to have suffered a net loss of 1.3 trillion won in 2021. Sales fell nearly 40% in 2021 from a year earlier due to a severe labor shortage three or four years. Its deficit snowballed due to large-scale provisions prompted by a spike in steel plate prices.

Industry insiders say the sharp rise in steel plate prices has dealt a particularly heavy blow to DSME.

In the third quarter of last year, DSME’s debt ratio stood at 298%. It jumped 130 percentage points from the end of 2020 (167%). Stock analysts estimate that DSME’s net loss will reach 150 billion won in 2022. Therefore, its debt ratio should easily exceed 310%.

DSME’s biggest problem is that its ability to raise funds to repay its debts is weakening. As of Q3 2022, DSME’s current ratio stood at 93%, with its quick asset ratio reaching 78%.

The current ratio is calculated by dividing current assets with current liabilities. It is a popular measure used to assess a company’s short-term liquidity against its available assets and outstanding liabilities. In other words, it reflects a company’s ability to generate enough cash to repay all of its debts once they fall due. The quick asset ratio is calculated by excluding inventory assets that are difficult to cash out immediately. This is a more conservative indicator than the current ratio.

Usually, if a company’s current ratio is over 150% and its quick asset ratio is over 100%, it means the company is very stable. But DSME’s numbers were well below the baseline.

Hyundai Heavy Industries posted a net loss of 350 billion won in the first half of 2021, but over the same period, its debt ratio was 144%, its liquidity ratio was 133% and its debt ratio was 133%. fast asset at 117%.

DSME recorded $10.8 billion in order intake in 2021, exceeding its order intake target of $7.7 billion. For this reason, some observers say its deficit is expected to shrink this year and eventually it will turn to a surplus (net profit of 50 billion won) from 2023.

However, it takes two to three years for orders to reflect in actual sales, and given short-term loans and shipbuilding costs, DSME is very likely to face a liquidity crunch in 2022, predict. the analysts.

Given these concerns, state-owned banks such as the Korea Development Bank provided DSME with a 2.9 trillion won line of credit.

Initially, HHI Group planned to improve the financial structure of DSME after its acquisition. But with the plan shattered, DSME has been put in a situation where it has no choice but to ask the government to come to its rescue.


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