NPS in a tight spot

The National Pension Service (NPS) has deferred a decision for another week on whether to agree to a government-led bailout of Daewoo Shipbuilding & Marine Engineering (DSME).

Under the plan, the state will requires all private lenders to participate in a debt reorganization scheme to prevent the shipbuilder from entering bankruptcy procedures.

If the NPS goes along with the state program, which also requires bondholders to convert half of their debt into equity in DSME and defer the maturity of the rest for another three years, it would lose about 260 billion won out of the 388.7 billion won ($343 million) in DSME corporate bonds it owns.

Then again, it could see up to 90 percent of its investment go down the drain if the shipbuilder sails into bankruptcy court. One way or the other, it will be losing valuable assets that should be translating into pensions for ordinary citizens. It must opt for the route that minimizes its losses.

The government has put the national pension fund operator in a tight spot. The bonds were purchased at a time when DSME was window-dressing losses of billions of dollars as profits over several years under the astonishingly lax management of state lender Korea Development Bank, which is its largest shareholder and creditor. The accounting fraud was later exposed, but the government proceeded with a bailout.

It injected fresh funding of 4.2 trillion won in 2015 and converted 2.8 trillion won worth of debt into equity last December. It is pursuing another rescue package comprised of 2.9 trillion won in new loans and a haircut on existing debt. It is pouring massive amounts of public funds to make up for past losses and mismanagement.

Yet the government is audacious enough to bully private lenders into go along with the bailout. Yoo Il-ho, deputy prime minister for the economy, more or less threatened that “the solution is laid out for the bondholders on what is the best way to protect the interests of its fund holders and investors.”

National pensions are not a piggybank for the government. The interests of the contributors should come first. The NPS is still under fire for having succumbed to demands from aides of the president to agree to a merger plan of Samsung units as its shareholder.

Whatever the conclusion the NPS comes to about its investment in DSME, the government must not interfere.

JoongAng Ilbo, April 7, Page 34