South Korea's big-four shipbuilders have a combined debt of S$2.77 billion (2.3 trillion won) that is due to be serviced in 2017, a prospect that has raised serious concerns about the industry's ability to survive the oil market downturn.
According to analysts, the glut in shipping supply, which has hit the industry hard, will not disappear until oil prices climb back into the $70 range.
As of now the debt pile with the big ship builders is the biggest in as many as 20 years and there are doubts if the ship builders -- Daewoo, Samsung Heavy, Hyundai Industries and Hanjin Shipping -- will be able to avoid default without the help f the government.
With bond yields shooting up and a weakness in the commodity markets not showing signs of easing up, the Asian ship building hub is looking down the barrel. Complicating the situation further, rising competition from Chinese shipbuilders who offer cheaper alternatives is also hurting the Korean ship builders.
"Real worries about shipbuilders' debt will become more apparent next year as maturities approach ... Daewoo will need an additional lifeline from state banks, and companies like Samsung Heavy may need to get help from their group firms," Kim Jin-young, a credit analyst at HMC Investment in Seoul, told Bloomberg.
With the bottom lines taking a hit and the credit prospects deteriorating at the major shipbuilders, the South Korean government said in November it would pump in $13.37 billion (11 trillion won) to steady the industry.
The trade ministry said the government would order more than 250 vessels and offer about 6.5 trillion won in financing to support the shipbuilders who contributed almost 8 percent to the South Korea's exports and around 7 percent of the country's manufacturing jobs last year.
The government said it would form a new company with a capital of 1 trillion won to buy 250 boats as well as coast-guard vessels and navy vessels. The measures were announced after the industry suffered heavy job cuts amid an 87 percent fall in orders in the first nine months of this year alone.
With debt maturities approaching in 2017, the ship builders will face enormous challenges, analysts said, adding that this will make the government's role in steadying the shipbuilders more arduous.
"Real worries about shipbuilders' debt will become more apparent next year as maturities approach ... Daewoo will need an additional lifeline from state banks, and companies like Samsung Heavy may need to get help from their group firms," Kim Jin-young, a credit analyst at HMC Investment in Seoul, said.