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

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.

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.

“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.”