Genting Faces Potential Default as German Court Refuses Injunction
Genting Hong Kong’s effort to compel the German state to release funds under an emergency loan for the MV Werften was blocked today by a German court. While Genting might still appeal the court ruling, the failure of this along with other attempts to release financing for the construction of the Global Dream cruise ship has raised the possibility of cross defaults on the group’s nearly $2.8 billion in debt. At the same time, the MV Werften administrator has commenced the process to sell the incomplete ship and the shipyard facilities.
MV Werften had been seeking to complete the terms government loans to permit the shipyard to continue the construction of the massive 208,000 gross ton cruise ship. Initial terms had been reached in June 2021 with the federal government for a loan package as well as a “backstop loan” to be provided from the state where the shipyard is located in the advent the shipyard faced a liquidity shortfall.
The state of Mecklenburg-Western Pomerania argued in a court hearing last week that the loan valued at $88 million was for 2024 and only if the shipyard had a liquidity shortfall after the other financing agreements including the larger loan from the government. Genting Hong Kong argued in December that it met the terms of the loan including a capital investment from its parent and that it should have been able to draw down the loan based on the liquidity restrictions placed on the shipyard.
The shipyard was forced at the beginning of January to delay workers’ December wage payments saying that it had liquidity restrictions. The shipyard at the time was also seeking an approximately $123 million milestone payment under existing financing for the construction of the Global Dream. Unable to obtain any of those funds, MV Werften filed for insolvency on January 10. In today’s ruling, the district court said the state government was not required to make the loan payments at this time.
While the court was reviewing the loan dispute, Christoph Morgen, a German lawyer with a background in the shipbuilding business, was appointed interim administrator for MV Werften. In his first week, Morgen reports that he made good progress, including payment of the outstanding wages from December for most of the shipyard’s nearly 2,000 employees. The administrator reports that he is also working with suppliers to find a way to get them paid.
Morgen told the German media that he has had constructive talks with Genting about the Global Dream, saying completing and selling the cruise ship is a high priority. The cruise ship is reported to be 75 percent complete and had been expected to be delivered this year to Dream Cruises, another subsidiary of Genting Hong Kong. Morgen said he could also explore the sale of the incomplete ship to other companies but noted that it was a specialized ship designed for Genting. The hope is to sell the ship separately from the shipyard facilities.
The administrator of the bankruptcy of Lloyd Werft, another Genting-owned shipyard in Bremerhaven, stressed that Genting is no longer involved in the discussion of the fate of the shipyards. Lawyer, Hendrik Heerma, who was appointed as the provisional insolvency administrator for Lloyd Weft noted that the company is debt-free and that he would continue exploring the sale to investors from the UAE or another German shipbuilder. Heerma said he would consult with Morgen who leads the MV Werften process.
Elected officials in Germany and Morgan are raising the possibility that the three shipyards owned by MV Werften would be sold separately. There are reports that the yards might be used to build components for offshore energy or repurposed into industrial parks.
Genting Hong Kong warned investors that the failure to secure the financing for MV Werften has “created an immediate and significant gap in the liquidity resources of the group... there is no guarantee that the group will be able to meet its financial obligations under its financing arrangements as and when they fall due.” Genting was holding out hope that it would be able to get the injunction compelling the Mecklenburg government to release the monies in the backstop loan.
While none of its creditors have yet made demands, Genting warns, “this in turn triggered cross-default events under certain financing arrangements of the group that have an aggregate principal amount of approximately US$2.777 billion.” Those creditors have the “right to demand payment of the indebtedness and/or take action pursuant to the terms of their respective financing arrangements.”
In addition to MV Werften and Lloyd Weft, Genting Hong Kong owns Crystal Cruises, Dream Cruises, and Star Cruise Line as well as casino resorts in Asia.