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KDB offers to convert debt to equity for Daewoo

Lee Dong-geol

Korea Development Bank (KDB), a main creditor of Daewoo Shipbuilding & Marine Engineering (DSME), said Tuesday that the bank will accept debt-to-equity swaps worth at least 1.6 trillion won ($1.4 billion) to keep the company operating with sufficient financial liquidity.

Lee Dong-geol, chairman of KDB, said Tuesday that a final amount will be announced sometime next week after discussions with the Export-Import Bank of Korea, another state-run bank involved in the government’s efforts to revive the shipbuilder.

The debt-for-equity swap, which allows conversion of a company’s debt into equity held by the lender, is part of the 4.2 trillion won injection promised by creditors including KDB. Of the 4.2 trillion won, KDB is supposed to support 2.6 trillion won of the plan, while the Export-Import Bank of Korea offered 1.6 trillion won.

“We can’t mention the exact amount for now because the boards at KDB and the Export-Import Bank need to agree on the matter,” Lee said. “For KDB’s part, we will offer at least 1.6 trillion won, and when taking into account the share of the Export-Import Bank of Korea, the total amount will reach well above 2 trillion won.”

Lee added that the Export-Import Bank would issue perpetual bonds, a fixed-income security with no maturity date, to DSME on top of the promised 1.6 trillion won. DSME doesn’t have to pay back the principal on the bonds.

The chief held a press conference after news reports speculated that KDB and the Export-Import Bank are mulling offering over 3 trillion won in debt-to-equity swaps.

DSME is expected to face significant headwinds next year, as large amounts of corporate bonds are set to mature that year in addition to an anticipated decline in new orders.

KDB is already planning to sell off its 60 million shares in DSME.

Lee also touched upon an accusation that KDB is giving favorable treatment to DSME over Hanjin Shipping. KDB is also a key creditor of Hanjin Shipping, but the company has been placed under court receivership.

Lee said that the status of the two companies is different, which resulted in the separate approach.

“Hanjin Shipping was the world’s seventh-largest container-shipping line whereas DSME was the No. 1 in shipbuilding,” he said. “If the government let the company fall, the combined loss could be up to 60 trillion won. DSME has a number of subcontractors, including 370 partners and 1,100 parts companies.”

The announcement came a day after the bank announced several reforms. DSME’s fall exposed serious problems in the management of KDB.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]