DSME creditors reticent to accept rescue strategy

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DSME creditors reticent to accept rescue strategy

It’s been less than a week since the government said it was pouring more taxpayer money into the troubled Daewoo Shipbuilding and Marine Engineering (DSME), to prevent the massive tsunami a collapse would bring on the nation’s economy.

However, the rescue plan is already off to a rocky start as some creditors, including the National Pension Service are reserved in giving a green light.

On Monday, Korea Development Bank (KDB), the shipbuilder’s main stakeholder, met with DSME creditors to discuss local commercial banks’ debt adjustment plan for the shipbuilder. It was the beginning of a series of discussions to come. If the banks agree on the terms and conditions of the plan, KDB will secure the confirmation in writing and use the document as leverage to persuade investors such as NPS who own DSME’s corporate bonds and commercial paper.

NPS is expected to suffer heavily from the plan that the government announced last week, especially as it holds 390 billion won ($351 million) in DSME corporate bonds. Additionally, of the 440 billion won of corporate bonds of the shipbuilder expected to mature on April 21, NPS owns 43 percent.

In fact, the state-run pension service reportedly is considering filing a lawsuit against the shipbuilder for manipulating its balance sheets to turn losses into profit. Also, NPS has become reluctant to side with large conglomerates that have ties with the government, as it was caught up in the scandal that brought down President Park Geun-hye.

DSME and KDB are hopeful that they may be able to convince NPS.

“Institutions such as NPS are yet to reveal where they stand,” said a DSME manager familiar with the case. “They need a clear reason behind their decision, whether it is to approve or reject the plan and the bailout measure is likely to incur the least amount of loss.”

In any case, bank losses seem inevitable, analysts say.

“Under the new measure, it is inevitable for the banks to acquire additional funds,” said Lim Jung-min, a strategist at NH Investment and Securities. “Among the local banks, Hana Bank and KB Kookmin Bank show the biggest exposure with 711 billion won and 524 billion won each.”

Park Jin-young, an analyst from HMC Investment and Securities, shared a similar sentiment.

“In case of debt-equity swap, Hana and KB Kookmin will experience additional losses but under the P-Plan [court receivership which DSME will undergo in case creditors do not approve the new measures], it will be Shinhan Bank and NH Nonghyup Bank who provided a large volume of refund guarantee that will suffer additional losses.”

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]
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