Uneasy allies try to right the ship

Two banks are collaborating to rescue Daewoo Shipbuilding & Marine Engineering, but not without some conflict.

Korea Development Bank (KDB), the troubled shipbuilder’s major shareholder, and the Export-Import Bank of Korea, its major creditor, are preparing emergency funding measures to keep the company afloat and to prevent its woes from spreading to the financial sector.

KDB said late on Tuesday that it was examining the shipbuilder’s books to discover the major causes of its losses. The bank added, though, that Daewoo has no liquidity problems and is meeting its obligations to its banks with no trouble.

But it has been accumulating massive losses, which some observers fear might be as much as 2 trillion won ($1.73 billion). The development bank said it has approved refund guarantees for container ships built for Maersk, adding that other creditor banks will also do the same for new orders.

One of the main agendas for the rescuers in the coming months will be keeping Daewoo’s debt ratio stable; if it rises, it could trigger a reduction in the company’s credit rating and then to fears among potential customers about its ability to fill orders.

KDB insists that all creditors should share in a bailout, but the ExIm Bank and other creditors want KDB to clean up what they say is its own mess.

Local banks’ outstanding exposure to DSME, including debt, securities and payment guarantees, is estimated at 21.7 trillion won by NH Investment & Securities.

If the estimate of 2 trillion won in losses is accurate and is reflected in its books in the second quarter, DSME’s debt-equity ratio could rise to 600 percent from the current 370 percent, an analyst said.

“When Daewoo issued bonds worth 500 billion won in April 2014, it agreed to keep its debt ratio below 500 percent. A rise above that level will downgrade its credit rating,” an Ebest Securities analyst said.

To head off that possibility, KDB is reportedly preparing a four-pronged plan that would increase paid-in capital, swap debt for equity, supply fresh capital and extend the repayment period for outstanding loans.

“A combination of the four will improve [Daewoo’s] financial shape without a debt workout,” a KDB official said.

DSME shares jumped 14.4 percent on Tuesday after local media reported on KDB’s financial aid plans early in the day. They ended at 8,520 won, snapping five consecutive sessions of declines that resulted in a loss of 44 percent of their value.

DSME is expected to report operating losses of 2-3 trillion won in its second quarter, hit by delays in orders and sluggish offshore plant activity that the company has relied on heavily for revenue.

A delay in a project to build an oil exploration ship, a contract the company won in 2011 and worth 2.4 trillion won, alone resulted in 1 trillion won in losses on its books.

BY PARK JUNG-YOUN [park.jungyoun@joongang.co.kr]