KDB tries to sell DSME bailout

The main creditor of Daewoo Shipbuilding and Marine Engineering on Thursday informed private creditors and bondholders of the outcome of due diligence on the troubled shipbuilder, as part of its efforts to persuade them to agree on a debt-for-equity swap.

The state-run Korea Development Bank, the main creditor, was holding a meeting with stakeholders of DSME, including the National Pension Service and the Korea Post, to discuss the financial arrangements that have to be undertaken to help bail out the shipbuilder.

The outcome of the due diligence is expected to give the private creditors access to DSME’s books.

The National Pension Service, which holds 390 billion won ($350 million) worth of DSME’s bonds, held a meeting Tuesday on whether to agree on the plan, but no decision was made.

Korea Development Bank and another state-run creditor, the Export-Import Bank of Korea, announced last week a fresh rescue package worth 6.7 trillion won to the ailing shipbuilder but only if all stakeholders agree to the painful debt-for-equity swap plan.

The huge rescue measures represent the second round of bailouts for the shipbuilder that has been suffering severe liquidity problems over heavy losses in its offshore projects.

Under the rescue package, DSME will receive new loans worth 2.9 trillion won, if lenders and bondholders agree to swap 2.9 trillion won of debt for new shares in the shipbuilder.

Unless they agree on the debt-for-equity swap plan, DSME will be placed under a new corporate rehabilitation program, which is a combination of debt workout and court receivership, the creditors said.

During an annual shareholder meeting on Thursday, DSME CEO Jung Sung-leep said the shipbuilder will strictly implement its own “bone-crushing” self-rescue measures “to survive.”

“We aim to improve our financial structure by winning new orders and making a continuous profit,” Chung told shareholders.

Analysts have raised questions about the latest rescue package for DSME, citing the shipbuilder’s fate that is tied with the global shipbuilding industry.

“Daewoo is struggling with a sharp drop in new orders, reflecting significant oversupply in the global shipping industry,” an international ratings agency, Fitch Ratings, said in a statement this week.

“One creditor, the National Pension Fund, has already flagged legal concerns over accepting the bailout plan. It is likely that Daewoo would eventually require further support, even with the bailout, given the weak outlook for the shipbuilding sector,” Fitch said.

Another international ratings agency, Moody’s, also warned that the debt-to-equity swap is “credit negative” for Korea Development Bank and Export-Import Bank of Korea because of the potential higher loss rate on equity than loans. YONHAP