DSME gets ‘overdraft’ before bond conversion

Debt-ridden Daewoo Shipbuilding & Marine Engineering will receive 500 billion won ($446) in emergency funding from its main creditor, Korea Development Bank, within this month, according to industry sources Wednesday.

The cash is a part of 2.9 trillion won support fund the Korea Development Bank and Export-Import Bank of Korea promised to inject to save the shipbuilder in March.

The banks’ support will be offered in the form of overdraft, which means the shipbuilder will only use it when its cash flow dries up. When the shipbuilder earns profits after ship deliveries, it needs to immediately pay back the overdraft to the banks.

A source among DSME’s creditors told the Yonhap News Agency on Wednesday that the shipbuilder is expected to run short of roughly 500 billion won for operations by the end of this month.

The 4.2 trillion won cash injected by the two banks in 2015 has already been used. New funds from a second round of cash injection will be used to buy materials for building ships and pay suppliers and workers.

The Korea Development Bank and financial authorities initially drafted a plan to inject new funds once the company’s bondholders converted half the corporate bonds into stock. That plan will take effect once a court approves the validity of the conversion process and none of the bondholders express opposition to the court’s approval.

However as an individual investor in corporate bonds recently appealed to the High Court of Busan, the debt conversion process has been delayed.

The High Court rejected the appeal, but there is still a chance the investor may appeal to the Supreme Court. The investor is known to have invested 3 billion won in DSME’s corporate bonds.

For that reason the banks decided to go with a new fund injection before the bondholders’ debt-equity swap.

Meanwhile, the troubled shipbuilder lost a patent dispute on technology related to liquefied natural gas carriers in Korea on Tuesday.

The so-called partial re-liquefaction system is a technology that re-liquefies boiled-off gas from LNG to use as fuel for the carrier ship. The technology enhances fuel efficiency and cuts operating cost for LNG carriers. While DSME patented the technology before other shipbuilders in 2012, local rivals Hyundai Heavy Industries and Samsung Heavy Industries filed complaints with the nation’s Intellectual Property Trial and Appeal Board in 2014 and 2015 arguing the technology is no different from widespread re-liquefaction technology used by other shipbuilders.

In January, the board concluded the patent on DSME’s partial re-liquefaction system was invalid. DSME appealed to the Supreme Court in the following month.

The verdict by the Supreme Court Tuesday rejecting DSME’s appeal put an end to the three-year dispute.

“Other shipbuilders suffered as the use of LNG carrier-related technology was misunderstood as infringing DSME’s patent rights,” a source from the shipbuilding industry said.

DSME benefitted by promoting the technology as its own to shipping companies to win more contracts.

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