Creditors to extend W4.2 tril. to Daewoo Shipbuilding

By Choi Kyong-ae

Joung Young-suk, director in charge of the corporate restructuring department at the state-run Korea Development Bank, attends a press conference to announce the creditor banks’ decision to inject 4.2 trillion won into financially troubled Daewoo Shipbuilding & Marine Engineering from November in Yeoido, southwestern seoul, Thursday. / Yonhap

Creditor banks of Daewoo Shipbuilding & Marine Engineering (DSME) will inject 4.2 trillion won ($3.7 billion) into the company in an effort to keep the financially-troubled shipbuilder afloat.

The Korea Development Bank (KDB), a key creditor of the company, said Thursday that it will call for drastic restructuring in return for the financial support.

“After three months of due diligence on the shipbuilder, creditors have decided to offer the financial aid to help put it back on track and then recoup our loans extended to it,” KDB Director Joung Young-suk said at a press conference.

If DSME is allowed to go bankrupt, it will have a grave impact on the creditors heavily exposed to the shipbuilder and the national economy. It will also have ripple effects on fellow shipbuilders such as Hyundai Heavy Industries and Samsung Heavy Industries, a KDB official in charge of DSME matters said in a press conference.

KDB and other creditors have already funneled 2.9 trillion won. This time, KDB and the Korea Export-Import Bank of Korea, or Korea Eximbank, plan to inject 2.6 trillion won and 1.6 trillion won, respectively, he said.

The official acknowledged that the shipbuilding industry is not likely to make any meaningful rebound for the time being but the creditors had greater reasons to help DSME rather than letting it go.

KDB is planning to sign a memorandum of understanding with DSME by Nov. 6 on the company’s self-rescue programs which include job cuts, reduction in facilities and other streamlining efforts.

“We are targeting a turnaround by 2019,” KDB Executive Director Jung Yong-ho said.

In addition to the fresh loans, KDB will step up its efforts to sell the shipbuilder, which is 32 percent owned by KDB and 12 percent by the Financial Services Commission.

As part of plans announced in August, DSME has asked 300 manager-level officials to quit taking responsibility for the current situation, and cut wages for executives by 10 percent to 20 percent a year. It is also seeking to sell non-core affiliates and assets at home and abroad, including its headquarters building in central Seoul and its Daewoo-Mangalia Heavy Industries in Romania.

After signing the MOU next month, KDB and Korea Eximbank plan to gradually extend the 4.2 trillion won, Jung said without giving the exact timeframe.

In the January-June period, DSME swung to a net loss of 2.463 trillion won from a net profit of 70.8 billion a year earlier, according to a regulatory filing.

Orders to build offshore facilities such as floating production storage offloading units won since 2010 were all mega-sized and sophisticated projects. As most of the deals were engineering, procurement and construction based, DSME couldn’t pass increased raw materials costs onto the customers who placed the orders, DSME said.