A half-baked restructuring

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A half-baked restructuring

Financial Services Commission Chairman Yim Jong-yong struck down the possibility of mega-mergers as part of the government-led restructuring of the shipping and shipbuilding industries. Yim said that mergers to realign the shipbuilding industry “are neither desirable nor possible.” Initiating talks on merging the troubled Hyundai Merchant Marine with Hanjin Shipping would be, at this stage, “premature and inappropriate.”

Instead, the government will have state creditor banks demand more stringent plans from the companies themselves and carry out rigorous restructuring under the management of the creditors. From what Yim implied, the government will focus on restructuring individual companies, not the industry as a whole. The government cannot outright interfere in the affairs of private shipping and shipbuilding companies, as this may generate friction in trade and other areas. If it makes its strategy known too early, rescue efforts by employers and employees could wane, and taxpayers might oppose additional public bailouts.

The government maintains that it will step in after employers and employees demonstrate a strong will to salvage their companies, but they first must do this together and on their own. What the government says is theoretically correct. Nevertheless, it is out of tune with the current reality. The shipping and shipbuilding sectors have been struggling since 2008. The combined debt of the three shipbuilders and two shippers amount to 78 trillion won ($68 billion). Since the second half of last year, shipbuilding orders have stopped coming in. Cargo trade and freight rates have been on a downward spiral, with no sign of bottoming out.

Restructuring should take place in an industrial and not an individual enterprise context. It can take form and speed once all the options and means are laid on the table. The government must redesign the industry based on the perspective of long-term national competitiveness. A mega-deal that would involve merging companies or breaking up businesses for smaller mergers must be considered, too. Under such a picture, both employers and employees can agree to the restructuring process with fewer job concerns, and financial institutions will be less fearful of their loans going sour.

JoongAng Ilbo, April 27, Page 30
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