'Filling a bottomless vessel' is no longer tenable
Daewoo Shipbuilding & Marine Engineering is teetering on the brink as the cash-stripped shipbuilder struggles with a plunge in new orders. Daewoo's possible default on its 440 billion won ($393 million) in corporate bonds that mature on April 21 is one of the epicenters that could imperil Korea Inc. in that month.
On Thursday, the Financial Services Commission plans to announce a package of new bailout measures for Daewoo, which suffered an operating loss of 1.6 trillion won last year. The package could include 3 trillion won in fresh loans from state banks such as the Korea Development Bank, the company's main creditor.
The top financial regulator might pressure other creditors, including Woori Bank, to swap debt for equity to help lower Daewoo's debt ratio. The creditors also can face calls to extend the maturity of their loans to the beleaguered shipbuilder.
The government made it clear that there would be no more bailout when it forced state banks to offer 4.2 trillion won to Daewoo in October 2015. But this fresh bailout would oblige the government to face the criticism of reneging on its stated principles.
Rescuing Daewoo, which must honor 1.3 trillion won in maturing bills by next year, might be inevitable though, considering the far-reaching impact on the Korean economy that could be triggered by its bankruptcy.
More than 40,000 employees would be laid off and the regional economy in Geoje, South Gyeongsang Province, where the shipbuilder is located, would collapse. The nation's shipbuilding industry might suffer a severe setback if Chinese capital acquires Daewoo in search of our sophisticated technology.
Nonetheless, the old practice of ''filling a bottomless vessel'' is no longer tenable, no matter how necessary propping up Daewoo is. The government is defending the inevitability of a fresh Daewoo bailout, saying its new shipbuilding orders have fallen far short of expectations. Furthermore, the delivery of two drilling rigs worth 1 trillion won, originally scheduled for early last year, has been delayed to this year because of the customer's worsening financial status.
What is needed first is for the government to do some soul-searching as to why its injection of taxpayer money into Daewoo has failed so far. The government has been negligent in pushing for Daewoo's restructuring based on overly positive prospects.
Daewoo also has to come up with a more stringent self-rescue package that would include additional asset sales and layoffs. It is only natural that those responsible for corporate insolvency must share the pain.
Given the nightmare of the Asian currency crisis in the late 1990s, concerns are growing that failure to address the Daewoo debacle in time might make things more serious. This is why the government should do whatever it can to resolve the problem in cooperation with political parties in the run-up to the presidential election in May.