DSME faces a short-term debt cliff in September

Creditors of troubled shipbuilder Daewoo Shipbuilding & Marine Engineering (DSME) are speeding up restructuring measures as industry insiders question whether the shipbuilder can survive through September.

As the company has 400 billion won ($360 million) in unsecured short-term debt expiring in September, the company is considered to be approaching a cliff-edge.

Creditors want to spin-off the company’s special purpose ship business by the end of this year to file for an initial public offering (IPO) to raise some cash. Recently creditors selected an underwriting company to determine demand for such an IPO among local institutional investors.

DSME’s special purpose ship division builds battleships and submarines for the Korean government and also supplies naval vessels for countries overseas. It is one of DSME’s stable business lines reaping in 1 trillion won in revenue every year with a 7 percent operating-profit-to-sales ratio.

The IPO is part of a management turnaround plan submitted to creditors in early June.

Financial institutions were dubious about the IPO since Korea’s Defense Acquisition Program Administration, which is in charge of national defense equipment acquisition, is opposed to the idea of defense related companies releasing too much information or being dependent on outside investors for security reasons.

Creditors maintain that the IPO will be lead mainly by local institutional investors instead of foreign investors, and they’re hoping the administration will change its position.

Creditors are expecting to rake in over 300 billion won from a successful IPO of the special purpose ship business.

But the IPO hasn’t been approved by DSME’s union. “We are an ownerless company and the spin-off is just another step for the creditors to completely sell the company off,” a spokesman from the union said.

Along with the IPO, the shipbuilder is finding ways to secure liquidity.

The Sonangol contract, named after the Angolan state oil company, which propelled the shipbuilder into a short-term liquidity crisis, may be close to resolution. Due to a delayed takeover of two drill ships ordered by Sonangol, DSME was faced with a loss of $990 million.

Korea’s financial authorities have reportedly agreed to let the Korea Trade Insurance Corporation provide guarantees on loans for Sonangol so that DSME can be paid.

But some media Tuesday reported the Korea Trade Insurance Corporation is reassessing the risk.

BY LEE TAE-KYUNG, KIM JEE-HEE [kim.jeehee@joongang.co.kr]