Union agrees to DSME turnaround plan

Daewoo Shipbuilding & Marine Engineering’s union agreed to all restructuring measures going forward, fulfilling a precondition by creditors for additional financial support.

The company and the union submitted a joint-agreement for company normalization to its main creditor Korea Development Bank (KDB) on Thursday. KDB and the Export-Import Bank of Korea will decide on their 2.8 trillion won ($2.38 billion) support plan for the shipbuilder through a board of directors meeting today.

Under the terms of the agreement, the union will cooperate with all restructuring measures including severe layoffs without any form of industrial action that could undermine the company’s recovery.

“We made the decision to save the company from falling into court receivership and to protect the union members’ workplace and rights,” said Hong Sung-tae, head of the DSME union.

Had the union not agreed, the company could have been delisted from the stock market as its debt has exceeded its total assets, with its debt to equity ratio hitting over 7,000 percent.

KDB, the largest stakeholder of the shipbuilder will invest 1.8 trillion won by converting debt to equity and the Export-Import Bank of Korea will front 1 trillion won in perpetual bonds. Perpetual bonds are registered as capital and not as debt in a company’s book, which will raise DSME’s capital.

Also, to take further responsibility on the fall of a giant shipbuilder, a large portion of KDB’s stake in the company - 22 percent out of a total of 49.7 percent ownership, or 60 million shares - will be retired. KDB has been accused of failing to oversee the shipbuilder’s management properly. Management was found to have cooked the company’s books and engaged in bribery.

The remaining 27.7 percent that KDB owns through a 400 billion won paid-in capital increase last year will be reduced in value to one tenth through a capital reduction without a refund.

Once the support plans are approved by the boards of both banks, the plan will be confirmed by a DSME shareholders meeting to be held Nov. 25.

The original deadline set for the union to submit its agreement was Wednesday.

However, the company failed to reach agreement with its union and union members went on a four-hour partial strike Wednesday, which raised concerns among financial authorities.

“I thank the union for making the decision looking at a bigger picture,” said DSME CEO Jung Sung-leep, after inking the agreement. “We will normalize company operations as soon as possible through cooperation with our workers.”

DSME still has challenges ahead. New orders to build ships have been hard to land, and considering the current financial structure of the shipbuilder “it will be hard to win orders for offshore plants and ships if the customers look for financial stability when choosing business partners,” said Jeon Jae-chun, an analyst from Daishin Securities.

“DSME has 940 billion won worth of corporate bonds that mature from April through November next year and a trillion won drill ship delivery to Angolan state-run oil refiner Sonangol is expected to be further delayed,” said Yang Hyun-mo, a research fellow from eBest Investment Securities.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]