KUALA LUMPUR (Jan 8): Cruise ship operator Genting Hong Kong Ltd's indirect wholly-owned subsidiary MV Werften Holdings Ltd (MVWH) is reported to be teetering on insolvency as it finds itself in protracted negotiations with the German federal and state governments over long-promised financial assistance to mitigate the impact of Covid-19-driven movement restrictions which had stifled the global tourism sector’s growth, The Maritime Executive reported, quoting MVWH managing director Carsten Haake and a spokesperson for labour unions in Germany.

The Maritime Executive reported on Friday (Jan 7) that in meetings with the labour unions, MVWH stressed that the company still had significant cash balances, but that due to loan covenants, it was forced to postpone wage payment until next week.

“The heart would have liked to do it and the cash register would have allowed it," Haake was quoted as telling reporters in Germany on Friday.

“We have €30 million (about US$34 million/RM143 million) in liquidity, but there are legal frameworks under which we are not able to pay the wages today (Friday),” the managing director added.

Genting Hong Kong on Friday reportedly requested a suspension of trading of its shares on the Stock Exchange of Hong Kong pending an announcement, while in Germany, MVWH's shipyard management informed employees that it would not be making December 2021 wage payments scheduled for the same day.

According to the news report, a spokesperson for the German unions at the shipyards said that they believe the future hangs in the balance with the financial talks complicated by politics. 

"The shipyards currently have approximately 2,000 workers with 1,600 reportedly working on a giant new cruise ship called Global Dream that is being built for Genting’s Dream Cruises. Work on the 208,000 gross tonne cruise ship has been delayed several times first by the pandemic and then the financial troubles, but it is expected to be delivered this year,” The Maritime Executive reported.

"Speculation in Germany is that MVWH will be declared insolvent, which could begin a protected recapitalisation of the shipyard operation. Work would likely be curtained at the company’s three shipyards with the mayor of Mecklenburg-Vorpommern reporting that he expects the shipyard [there] to be closed permanently and that he is planning to buy the location to convert it into a multi-use industrial park. 

"The situation is continuing to evolve, with late today (Friday) German media outlet Oostee-Zeitung reporting that the former owner of the shipyard had expressed interest in buying the locations in Stralsund and Warnemünde for use with the emerging offshore wind power industry,” The Maritime Executive reported.

Financial difficulties at Genting Hong Kong and MVWH reportedly began in the summer of 2020 when all of their operations were suspended due to the pandemic. 

According to the news report, Genting Hong Kong completed a recapitalisation which in part was based on Germany’s loan guarantees from the state government where the shipyard is located as well as the federal government’s Economic Stabilisation Fund.

"An initial bridge loan supplied in 2020 was used to complete construction of Crystal Endeavor, an expedition cruise ship, and in June 2021, Genting [Hong Kong] reported that it had reached agreements with Germany for financial support to be used to run the shipyard and complete the construction of Global Dream,” The Maritime Executive reported.

At the time of writing on Saturday, Genting Hong Kong had not issued an update to the Stock Exchange of Hong Kong following an announcement the day before that the company’s share trade would be halted from 9am pending the release of an announcement in relation to an inside information of the company.

Prior to the trading halt, Genting Hong Kong’s share price settled down at HK$0.73 (39.4 sen) on Thursday from HK$0.78 on Wednesday.

Quoting Genting Hong Kong’s filing on Sunday, The Maritime Executive reported that Genting Hong Kong had apprised shareholders of the situation in what it called a voluntary announcement. 

Genting Hong Kong reportedly said that the continued pandemic, and specifically the emergence of the Delta and now Omicron variants, had impacted the recovery of its cruise operations. 

Genting Hong Kong is the parent company of US-based Crystal Cruises, which reportedly resumed operations in the summer of 2021, in addition to Dream Cruises, which is operating cruise ships under restricted programmes from Singapore, Hong Kong and as of last week Taiwan, as well as Star Cruises, which just started cruises from Malaysia. 

"In mid-December 2021, in danger of breaching its minimum liquidity covenant, MVWH sought to draw down US$88 million from a 'backstop loan' provided by the state of Mecklenburg-Vorpommern and the federal government’s Economic Stabilisation Fund. The state informed Genting [Hong Kong] that it did not believe the company had met the conditions required to access the loan, while Genting [Hong Kong] contended it 'satisfied all drawdown conditions'.

“Genting [Hong Kong] went to the court seeking an injunction to force the release of the monies. The court initially sided with Genting [Hong Kong], but later lowered the amount that Genting [Hong Kong] could draw and then ruled to suspend any immediate payments and ordered a further hearing scheduled for Jan 11. Pending the outcome of the hearing and the negotiations, Genting Hong Kong reported that it will continue to consider various options to address potential liquidity needs of the group,” The Maritime Executive reported.