Pension service wavering on DSME bailout

The National Pension Service, which holds the key to the success of the new bailout plan for cash-strapped Daewoo Shipbuilding & Marine Engineering, is still at a loss on where it stands on the new initiative.

After Wednesday’s internal meeting, the state-run pension fund said in a press release Thursday that it was unable to reach a conclusion on the matter, citing doubts about the company’s financial status.

The NPS holds 388.7 billion won ($343.2 million) out of 1.35 trillion won in DSME corporate bonds. Of the 440 billion won expected to mature on April 21, the pension fund owns 43 percent. Based on the new rescue measures laid out by the state-run Korea Development Bank and Financial Services Commission in late March, 50 percent of corporate bonds and commercial paper will undergo a debt-to-equity swap while the maturity date of the remaining 50 will be given a five-year grace period.

Due to its heavy investment into the troubled shipbuilder, NPS is in a predicament, unable to avoid damage if it consents to the plan or rejects it. According to NICE Group, a credit rating agency in Korea, the size of damage that NPS would suffer if it gives a green light on the bailout plan may amount to as much as 270 billion won. The company, however, remains reluctant to be seen as siding with conglomerates connected to the government as it was caught up in the scandal that brought down Park Geun-hye.

If the NPS decides to vote against the plan, in which case other bondholders such as Korea Post are likely to follow suit, DSME will have no choice but to file for court receivership and undergo restructuring through a “pre-packaged plan.” Under the plan, the rate of debt-equity swap will balloon to 90 percent and the magnitude of the loss will only grow.

“At the end of the day, NPS needs a clear reason behind its decision, which means, at this point, the decision will come down to how it could minimize the loss,” said a person familiar with the matter.

Although it continues to consider its stance, time is ticking for the state-owned pension fund, as it must finalize its decision before the bondholders’ meeting slated for April 17 and 18.

On the same day, DSME and its labor union said they have come to an agreement on measures to further demonstrate their intention to share the pain and slash employee salaries by 10 percent. They also will tentatively suspend ongoing negotiations to focus on production.

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