April 25, 2024

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[THE INVESTOR] South Korea’s state-run creditors of cash-strapped Daewoo Shipbuilding & Marine Engineering have decided to offer fresh capital injection of 2.9 trillion won (US$2.59 billion) to help it stay afloat, the financial regulator announced on March 23.

The South Korean shipbuilder has been financially struggling despite creditor-led restructuring efforts and a bailout package last year. 

The additional loans will prevent DSME from going bankrupt when some of its debt matures next month, which could have had a damaging impact on the economy, the Financial Supervisory Commission said in a statement.

DSME’s largest shareholder and policy lender Korea Development Bank announced the new bailout for the shipyard which is suffering a liquidity crisis due to protracted industrywide slump and declining orders.

“A meaningful shipbuilding industry revamp will be possible only when DSME continues operations by securing sound financial health and maintains its activities,” the KDB said in statement.

Letting DSME go bankrupt now would cause ripple effects worth up to 59 trillion won, the FSC said.

In 2015, the creditors poured 4.2 trillion won worth financial aid into the ailing firm.

“As the company faces the sharpest decline in new orders, resolving DSME’s liquidity problem solely through self-rescue plan seems to be difficult,” Finance Minister Yoo Il-ho said in a meeting with other ministers.

The KDB and another creditor Export-Import Bank of Korea will provide 1.45 trillion won each.

If the government-led rescue package based on debt-equity swap is completed successful, creditors will be able to put DSME up for sale after 2018, according the policy bank said.

“It is desirable to pursue strategic industry restructuring to resolve oversupply and overheated competition after 2018 when the market conditions are expected to improve.”

There have been debates here that DSME should merge with one of the other two major shipyards -- Hyundai Heavy Industries and Samsung Heavy Industries -- in order to avoid a collapse of the industry, once a bulwark of the nation’s economy,

The financial aid will give DSME much-needed relief as it has to pay down maturing corporate debt worth 1.5 trillion won until next year.

Still, the embattled shipyard has a tough road ahead. It has pledged to shed 1,000 more employees and cut down 25 percent of labor costs.

By Park Han-na (hnpark@heraldcorp.com)