DSME lives to see another day due to union’s decision

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DSME lives to see another day due to union’s decision

Daewoo Shipbuilding and Marine Engineering (DSME) isn’t going under - at least not yet.

After the labor union of the financially troubled shipbuilder promised late Monday night to comply with creditors’ demands, the Korea Development Bank (KDB) - the biggest shareholder in DSME - began the process of giving the support it had threatened to withhold.

According to the KDB on Tuesday, it will hold a board meeting on Thursday to decide the final plans for the normalization, which will include about 4 trillion won ($3.5 billion) in financial support.

The KDB said the details of the plans will not be significantly different from those announced earlier this month, confirming that the two state-run banks - KDB and Export-Import Bank of Korea - will be lending 3 trillion won. KDB will also increase capital by issuing 1 trillion won worth of new stock.

The banks will also extend the expiration dates for loans made to DSME in the past.

Such plans were in a danger of being canceled after the creditors and financial authorities declared Monday that they might not release the funds - or could even file for court receivership - if the shipbuilder’s labor union didn’t comply with creditors’ demands, which included promising not to strike against restructuring plans, by midnight Tuesday.

The union at first refused the offer, saying they couldn’t give up their legally guaranteed right to protest, but signed on after significant pressure from both the creditors and financial authorities.

“There were many arguments regarding the issue, but we decided to accept the demands because we want the company to be back on track as much as management does,” said Hyun Si-han, head of the labor union, in a statement late Monday night.

DSME’s debt-to-equity ratio was 776 percent in the first half, but the figure will increase even more as the third quarter’s operating losses of 1.22 trillion won were reflected in its balance sheet Tuesday.

Cumulative operating losses through the third quarter of this year were 4.3 trillion won, in contrast to last year’s 318.3 billion won in operating profit through the same period.

The company said the losses were due to the cancellation of overseas contracts including the construction of drill ships, but still expects the figures to start improving in the next quarter with financial support from creditors.

“We expect our profitability to improve particularly when we start building high-value added vessels including liquid natural gas and liquid petroleum gas ships next year,” said a spokesman of DSME in a statement.

But concerns are rising that KDB’s promised help might not be enough, considering the case of STX Offshore and Shipbuilding.

KDB has given STX 4.5 trillion won since 2013, but the shipbuilder’s assets are still considered to be worth less than the stated value of its stock - something the bank’s labor union pointed out in a statement on Monday.

“This DSME case recalls the nightmare memories of STX,” the union wrote. “The company should carry out this restructuring with reasonable principles.”


BY KWON SANG-SOO [kwon.sangsoo@joongang.co.kr]

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