Shame on the KDBThe Financial Supervisory Service (FSS) recently announced that 32 companies are subject to state-led restructuring. After examining 602 out of 1,973 enterprises, the financial watchdog ranked weak companies on a scale of A to D. Of the lower two, C-graded companies are subject to a creditor-led workout program, while receiving a D would go straight to court receivership.
The two struggling shipping companies, Hanjin Shipping and Hyundai Merchant Marine, were graded C. However, the top three shipbuilders, Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering (DSME) and Samsung Heavy Industries — all of which are in urgent need of restructuring — strangely stayed above the “normal” threshold of B.
In particular, the FSS’s decision to include the embattled DSME, a hotbed of mismanagement, corruption and parachute appointments, is incomprehensible. The FSS claimed that DSME, which is now surviving entirely on bailout funds, was excluded from the lower category because its major stakeholder — the state-owned Korea Development Bank — will work hard to turn it around.
The shipbuilder was also given a B last year even after it was found to have hidden massive losses of over 5 trillion won ($4.49 billion). Last year alone, it incurred losses exceeding 3 trillion won and its debt exceeded assets by 7,308 percent. A company in such a mess should already have been dissolved by now. Commercial banks raised doubts about DSME’s ability to pay back its loans. Yet the KDB last year endorsed a new rescue package of more than 4 trillion won for the company.
The shipbuilder is under investigation for multiple wrongdoings. The company’s active chief financial officer became the latest to be summoned by the prosecution upon suspicion that the company undercut last year’s losses by around 120 billion won in order to avoid being put on the watch list for having an inadequate capital ratio, thus losing financial support from creditors. The management recruited to clean up the company also seems to have committed a large-scale accounting fraud.
But the financial authorities and the KDB continue to use taxpayer funds to bail out DSME. We can only question the motives of an incumbent government trying so hard to protect this insolvent shipbuilder. The former and incumbent management have all been charged with illegalities from account fraud to embezzlement. We are appalled that the government still finds nothing wrong and wants to pour more money into the company.
JoongAng Ilbo, August 8, Page 30