Creditors detail plans for DSME

The financially troubled Daewoo Shipbuilding and Marine Engineering (DSME) will receive 4.2 trillion won of financial support from its creditors.

The creditors, led by the Korea Development Bank (KDB), announced final plans to normalize the shipbuilder at a press briefing held at KDB’s Yeouido headquarters in western Seoul on Thursday.

KDB, the largest shareholder of DSME, said the shipbuilder was predicted to make a total of 6.2 trillion won in losses this year after the creditor’s accountants, Samjong KPMG and Samil Pricewaterhouse Coopers, examined the company’s businesses in domestic and global markets in the last three months. DSME already reported 3.2 trillion won in operating losses in the first half, and roughly 3 trillion won in additional losses are expected to be made by the end of the year.

The problems that led to the miserable news included delays and increasing operation costs in the offshore plant businesses, the cancellation of contracts to build drill ships, crashing oil prices and about 1 trillion won in losses made by affiliates in businesses excluding the shipbuilding sector, according to KDB.

KDB said the shipbuilder needs 1.8 trillion won to stay afloat this year, and will require 2.4 trillion won more in the first half of next year - meaning the creditors only intend to provide support partway through 2016.

With the support, which creditors will provide by issuing new stocks and a debt-equity swap, DSME is expected to lower its debt ratio to below 500 percent by the end of the year. Along with the support, the creditors -- KDB, Export-Import Bank of Korea and Korea Trade Insurance Corporation -- will support 90 percent of the shipbuilder’s refund guarantee (RG) when it makes a new contract with a client. That guarantee is a standard part of agreements to build new vessels; clients generally pay up front, so the promise of a refund if the product is subpar provides a form of security.

DSME will not go through either a workout program or court receivership. “We decided not to go into such restructuring programs because it could impact the nation’s economy and damage its competitiveness in the shipbuilding industry,” said a spokesman of KDB. “Running programs like a workout would definitely damage the company’s credit rating and make it harder for them to win new contracts in the future. A court receivership also lead to bankruptcy.”

Still, the creditors said they will carry out a robust restructuring program after forming a task force consisting of representatives from all the institutions supporting DSME - including KDB, Export-Import Bank of Korea, KEB-Hana Bank and Nonghyup Bank - to oversee the shipbuilder’s overall management.

The creditors said they will gradually cut the number of DSME employees in accordance with the amount of production, scale back the company’s offshore plant business and sell off property, among other measures. They also promised an investigation into executives potentially responsible for the losses, saying they will refer suspects to prosecutors.

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