Creditors approve DSME bailout

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Creditors approve DSME bailout

Cash-strapped Daewoo Shipbuilding and Marine Engineering will get another shot at staying afloat after bondholders approved a bailout for the company on Tuesday.

During a meeting at the shipbuilder’s headquarters in Jung District, central Seoul, in the morning, investors agreed to reschedule 60 billion won ($52 million) worth of bonds that were set to expire in April 2019. Later in the afternoon, investors voted to postpone 350 billion won in bonds that were due next March.

A day earlier in a marathon of meetings, the National Pension Service, the Korea Post and retail investors agreed to reschedule their corporate bonds which were set to mature this year, including 440 billion won that was due this Friday.

The votes of approval are a nod for a bailout plan for DSME that was initially proposed by the Financial Services Commission, the country’s financial regulatory agency, and the company’s two main creditors, the state-run Korea Development Bank and Export-Import Bank of Korea. The plan involves turning 50 percent of corporate bonds into equity and postponing repayment on the remaining 50 percent by three years.

DSME will also receive a cash injection of 2.9 trillion won.

Yim Jong-yong, chairman of the Financial Services Commission, expects the company’s commercial paper holders to give their approval later this week.

“DSME has made three separate restructuring plans from December 2015 to March this year,” he said. “Concerns loom large still, and we regret deciding on an additional 2.9 trillion won in support under such conditions. We will monitor the company’s turnaround plan to make sure it is properly implemented.”

Under the turnaround plan where the company hopes to save 5.3 trillion won on its own, DSME has vowed to downsize its workforce from about 10,000 to 9,000 by 2021 and trim its financial liability from 5.7 trillion won to 2.3 trillion won. Earlier this month, nearly all of the company’s employees agreed to a 10 to 15 percent wage cut.

DSME’s sales will also be slashed from 12.7 trillion won to 6.2 trillion won, a move intended to make the company lean by concentrating on ships with competitive advantage like liquefied natural gas carriers.

“Once DSME becomes small in size after 2018, we believe industry-wide restructuring including overhauling the ‘big three’ system [referring to the country’s three largest shipbuilders, Hyundai Heavy Industries, Samsung Heavy Industries and DSME] into a ‘big two’ system will be possible,” Yim said. “We will find DSME an owner through an M&A.”

DSME still has some hurdles to overcome. The National Pension Service has filed a lawsuit against the shipbuilder for engaging in accounting fraud between 2010 and 2014. The size of the damages claim is about 140 billion won, according to Yim.

DSME also has to collect enough orders to make itself profitable amid prolonged stagnation in the global shipbuilding industry.

Japan and the European Union have filed a complaint with the OECD, arguing that the Korean state-run banks’ bailout of DSME violates World Trade Organization regulations.

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