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Genting Hong Kong faces demand on US$2.78 billion of debt as the bankruptcy of its MV Werften shipyard in Germany triggers cross default

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Genting Hong Kong faces an immediate debt payment of US$2.78 billion after the unit filed for bankruptcy this week, as a bailout by the German government fell through.

Genting Hong Kong's MV Werften shipyard filed for insolvency on Monday as it ran out of cash during the construction of the Global Dream, a cruise ship with the capacity for 5,000 people. A €600 million (US$678 million) bailout plan that required Genting Hong Kong to put up 10 per cent of the capital fell through.

The cross-default triggered would cause a material adverse effect on its business operations, prospects, and financial condition, Genting said in a statement to the Hong Kong stock exchange, where its shares are traded. The board, headed by Malaysian billionaire Lim Kok Thay, is discussing with bankers and professional advisers "to evaluate options available to the company," Genting added.

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Trading in Genting was suspended from Friday for the announcement when it fell 6.4 per cent to 73 Hong Kong cents. The stock has lost half its value since 2018, with US$766 million of capitalisation wiped out, as the global cruise and tourism industry became the biggest casualty of the Covid-19 pandemic.

How Genting bought Jho Low's superyacht, Equanimity, for US$126 million

"Cruise lines, related to the tourism businesses, were hard hit by the coronavirus outbreak and many of them cannot survive without financial support from the authorities or their shareholder," said Lu Ming, an agent at Shanghai Ocean Shipping Agency. "It is not a surprise to see a builder of cruise ships become insolvent."

Global Dream was originally expected to set sail in 2021 but construction stalled at 80 per cent completion due to the onset of the pandemic, MV Werften said.

A general view of the shipbuilding hall of the shipyard MV Werften, in Wismar, Germany, on January 10, 2022. Photo Reuters alt=A general view of the shipbuilding hall of the shipyard MV Werften, in Wismar, Germany, on January 10, 2022. Photo Reuters>

The insolvency filing in Germany will trigger cross-default events under certain financing arrangements of the Genting group, involving an aggregate principal amount of US$2.78 billion, the company said in its exchange filing. That leaves it at the mercy of creditors, who now have the right to demand or sue for immediate repayment.

Besides the MV Werften shipyard, Genting Hong Kong operates three cruise lines - Dream Cruises, Crystal Cruises and Star Cruises. It also owns and operates the Resorts World Manila casino and resort in the Philippines.

Genting Hong Kong reported a US$283.3 million loss in the first half of 2021, in addition to a US$1.72 billion setback in 2020 the global travel and tourism industry came to an abrupt halt because of Covid-19 restrictions.

The bankruptcy filing in Germany stemmed from a legal proceeding under which German creditors including the Economic Stabilisation Fund required the shipyard to meet certain milestones before drawing down a US$88 million loan to ease its liquidity crunch.

Authorities in Germany blamed Genting and senior executives for the shipyard's collapse, according to a report by the Associated Press. Genting Hong Kong said that it had offered to increase its funding from US$30 million to US$42 million, but was still unable to access new funds to bail out the shipbuilding subsidiary.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.