South Korean shipbuilding giants are returning to the capital markets as they have something to sell to stock investors: a booming orderbook.
Hyundai Heavy Industries is set to raise KRW 1.08trn ($935m) this month after pricing its initial public offering at the top of its indicative range, while Samsung Heavy Industries is due to complete a KRW 1.2trn rights issue involving 250m of new shares in October.
Following years of limited newbuilding orders, shipowners are returning to book containerships, bulkers, tankers and gas carriers for replacement demand and future transport requirements this year.
Some experts suggested South Korea's yards are regaining favour with investors on the Korea Exchange due to their ability to harness demand recovery with technological prowess.
The country’s shipbuilders received newbuilding orders totalling 24.8m gt between January and July, up by 146% from the same period of last year, Clarksons Research data shows.
Shinhan Investment, a Seoul-based securities brokerage, described the HHI shares as “attractive on all fronts” with new emissions regulations coming into force.
The International Maritime Organization’s introduction of the Energy Efficiency Existing Ship Index and Carbon Intensity Indicator rules in 2023 will lead to a 9.1% slowdown in the global average steaming speed, Shinhan estimated.
“We believe the resulting increase in freight rates will help to sustain a boom in order placements for longer than previously expected,” the brokerage said in a note.
“Market conditions for energy carriers [like] tankers, LNG carriers should recover from the current slump in the second half of 2021 thanks to real economic growth in emerging countries.
“Hyundai Heavy Industries is leading the global gas-fuelled vessel market…and thus stands to see higher growth in order backlog and building prices versus peers during the upcoming upcycle in orders.”
HHI plans to use as much as 70% of proceeds from its IPO to fund investments in new technology and eco-friendly ship technologies amid the industry-wide decarbonisation drive.
The Ulsan-based yard has already exceeded its $7.2bn sales target for 2021, with orders for 50 new vessels secured so far this year.
Separately, SHI chief executive Jin-Taek Jung told Bloomberg that his company is on track to beat this year’s order target of $9.1bn.
The shipbuilder received $7.1bn-worth of newbuilding orders for the first seven months of 2021, including $4.8bn for boxships and $1.7bn for LNG carriers, according to company data.
“The rapid growth in global trade in the second half of last year has put many shipping companies in a better position to order new vessels,” Jung said. “We expect the order market to further improve next year as stricter environmental rules will be implemented.”
The Geoje-based yard’s order pipeline for the coming months includes Qatar’s raft of LNG newbuildings, outstanding options for more LNG carrier newbuildings, shuttle tankers and orders worth $2bn related to the Bongo floating storage, production and offloading project off Nigeria.
SHI has proposed to use the funds from the rights issue to repay debt, develop eco-friendly technology, and enhance its environmental, social and governance standards.