Restructuring delayed

The government has again delayed the work of restructuring the shipbuilding industry. It announced an outline to streamline the industry to ease overcapacity and unprofitable operations after a cabinet meeting led by Deputy Prime Minister for the Economy Yoo Il-ho. Under the plan, the three majors — Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering (DSME) — will be kept intact.

The builders would be forced to realign their business portfolio to improve profitability and productivity as well as their balance sheets. In short, there is nothing new in the so-called reform plan.

The government maintains that it never considered closing down DSME. With the overcapacity problem still hanging over it, the proposal to bolster competitiveness also became unspecific and questionable without concrete actions on mergers and acquisitions and sales.

DSME will gradually reduce the work proportion of money-losing offshore business, but nevertheless allowed to keep it. The idea of spinning out the defense vessel-making division also has been scrapped. What the government was proposing is to buy time until the global market improves.

DSME had debt overwhelming its equity by 458.2 billion won ($401.6 million) as of the end of June. It does not have money to last a year.

The government targeted new orders of $6.2 billion for this year, but DSME so far has a mere $1.3 billion won worth. Public spending to bail out the company would only increase if business does not pick up.

The bill must be shared between two state lenders; Korea Development Bank, its largest shareholder, and the Export-Import Bank of Korea, its largest creditor. The government pledges there will be no more bailout, but we cannot be sure. The two lenders have been discussing debt-to-equity swaps to improve the shipbuilder’s balance sheet.

Nobody knows the best answer on DSME. It is not easy to ignore that over 40,000 jobs are at stake at the major shipyard and its subcontractors. Still the government had to come up with a blueprint to persuade the market. Delaying action will only bring about bigger catastrophe.

JoongAng Ilbo, Nov. 1, Page 30