Government makes final push to save ailing DSME

The government and the main creditors of the troubled Daewoo Shipbuilding and Marine Engineering made a final pitch for the National Pension Service, the shipbuilder’s largest bondholder, to approve its bailout plan, which was announced a month ago.

The Financial Services Commission and the Korea Development Bank said Sunday that they promised all institutional bondholders late Saturday that they will set up an escrow account, which is a temporary account, to deposit the principal and interest payments before DSME’s corporate bonds matures.

This proposal is intended to build confidence in DSME’s ability to repay the loan, which has been one of the biggest concern of institutional bondholders. Additionally, DSME has agreed to offer 100 billion won ($88 million), or 6.6 percent of the 1.55 trillion won of DSME’s corporate bonds and corporate papers, as collateral.

The 6.6 percent is the liquidating value of corporate bonds when the company goes bankrupt, according to due diligence by an accounting firm KPMG.

“The announced debt rearrangement plan is the best outcome crafted by the creditors at Korea Development Bank, the Export-Import Bank of Korea and the company itself,” said Yim Jong-yong, chairman of the Financial Services Commission. “The government hopes institutional investors can make the most reasonable decision based on our offer.”

The move was designed to convince the pension agency to agree to the bailout, which has been pushing back on its decision to approve it. With the bondholders’ meeting scheduled to be held today and tomorrow, the government needs two-thirds of the votes from the bondholders to go ahead with the bailout. Otherwise, the shipbuilder automatically falls into court receivership.

However, if the bondholders agree to back the shipbuilder, it can safely go past the liquidity crunch by earning 2.9 trillion won in extended loans from its main creditors, Korea Development Bank and the Export-Import Bank of Korea.

The NPS, even after the government’s proposal on Sunday, has yet to give an answer.

When announcing the government’s decision to save the debt-ridden shipbuilder a month ago, the FSC chairman stressed the huge economic impact that DSME’s failure could have on the Korean economy. The FSC has estimated an economic loss of up 59 trillion won.

Korea Development Bank Chairman Lee Dong-geol and CEO of the Export-Import Bank of Korea Choi Jong-ku also suggested that institutional bondholders, especially the government-run pension fund, make up their minds to take part in the government-led move and save the shipbuilder from falling into the so-called pre-packaged plan, or P-plan, which is a mixture of court receivership and a debt workout plan set up jointly by the country’s top financial regulator and creditors.

KDB’s Lee showed confidence that NPS would likely turnaround.

“There were some misunderstandings in specific terms and expressions,” the KDB chairman said, “but based on my latest talks with the head of the pension service, I think we now stand on common ground.”

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