Restructuring is not a bail-out

STX Offshore & Shipbuilding, which used to be the world’s fourth largest shipbuilder in terms of orders, is headed for court receivership.

The company’s creditors concluded in a meeting Wednesday that they no longer can afford to sustain the money-losing shipbuilder that was placed under their management in April 2013 and decided to take insolvency procedures.

Financial Services Commission Chairman Yim Jong-yong confirmed the planned move, saying it was an “inevitable” decision considering various factors. STX ran into trouble by trying to keep orders pouring in by offering bargain contracts amid reduced demand following the global financial crisis in 2008. That wasn’t a sustainable strategy.

Two state banks, the Korea Development Bank and the Export-Import Bank of Korea, injected a combined 4.5 trillion won ($3.8 billion) into the company since it came under creditors’ management.

The shipbuilder sank further into debt, losing up to 1.5 trillion won a year. It stands as an exemplary case for failed state bank-led corporate restructuring.

The government erred in two areas in its restructuring agenda for STX. First of all, it neglected the fact that its corporate woes fundamentally stemmed from global overcapacity and depressed demand.

It should have drawn up a restructuring plan in an industry-wide context instead of viewing STX merely as an individual company in trouble. It thought of salvaging the company first before true consideration of its scale. The company hardly improved under creditors’ scrutiny and attempts at management. It went on with its practice of low-bidding on contracts instead of making efforts to save costs and raise productivity. The government and creditors chose not to see the deepening crisis, hoping to escape accountability.

They forget that corporate restructuring should aim to rebuild a company to help bolster industrial competitiveness and minimize losses of public funds. These kind of mistakes must not be repeated. There are various complaints and criticisms about the direction of restructuring in the shipping and shipbuilding sectors. The government fails to demonstrate decisive will, and it is unclear who is in command, or whether anyone is.

The agenda also shows what happens when individual companies are looked at narrowly and not in the context of their industries. Injecting funds to bail out companies is not restructuring. If such actions continue, Korea will end up without a competitive shipper or shipbuilder.

JoongAng Ilbo, May 26, Page 30