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Shipbuilding: Dilemma for South Korea

Thursday, 12 January 2012 | 00:00
Dilemma time. South Korea’s shipyards must choose whether to allow a small, but growing rival (China) to take control of key technology, or risk overpaying for it themselves.
Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries are considering a joint bid for France’s Gaztransport & Technigaz, which makes the favoured containment systems for liquefied natural gas tankers. But China is also a potential bidder.
There is good reason for GTT’s owners -- GDF Suez, Total and Hellman & Friedman -- to cash in. Short-term LNG charter rates have risen fourfold from summer 2010 levels to $125,000 a day. Ship demand has surged; 54 were ordered last year, according to Platou LNG of RS Platou shipbrokers. That is half as many again as ordered in the last four years. South Korea’s yards have more than 80 per cent of those orders. China has less than 10 per cent with Japan the remainder. The majority of the ships will have GTT’s system. So how much is GTT worth?
Its owners think about $1.3-billion. Industry watchers say this is expensive. Back-of-the-envelope calculations bear this out; no financial data are available, but assuming revenues worth $500-millionm (average, one-off licence fees of $10-million per ship, although these vary with repeat orders, applied to a not unreasonable 50 of the total new ship orders), that would be more than twice sales, a hefty tag. The S&P 500 trades at 1.25 times sales, France’s CAC 40 at 0.5 times.
Yet there is China. Last year it signalled industry-building intentions with plans to block any new LNG tanker not built in China from its ports. Key technology owned by a well-funded rival could soon affect the trio’s current leadership. South Korea’s ship builders could easily overpay in financial terms for GTT. But the deal’s importance to their longer-term future might justify the cost.
Source: Financial Times
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