Bailout hopes for 2 shipbuilders
In a statement issued Friday, the government said in the past, restructuring of troubled companies had decided on financial grounds, without carefully weighting the impact of letting companies go under on the country and local communities.
The government emphasized that in such decisions in the future, it will canvas opinions from people living in an area where a troubled company is located in order to decide whether or not to bail it out using taxpayers’ money.
The Moon Jae-in government’s stance described Friday appeared to be a jab at the Park Geun-hye government, which in 2016 decided to let Hanjin Shipping go bankrupt.
The collapse of the world’s seventh largest shipping company caused turmoil in many countries as vessels loaded with goods were stranded around the world.
The Park government’s decision to let it go under sparked protests from the Democratic Party, which called the move irresponsible. It particularly said the government did not consider the impact on Busan’s economy. Hanjin filed for bankruptcy after creditors, led by state-run banks, refused to keep it afloat.
Expectations have risen that the government will save mid-sized Sungdong Shipbuilding and Marine Engineering, based in Tongyeong, South Gyeongsang. Sungdong has been operating under a turnaround plan agreed to by creditors and is showing signs of recovery. Last year, it posted revenues of 1.77 trillion won ($1.62 billion) and operating profit of 39.1 billion won.
The Financial Services Commission reportedly concluded that liquidating the company would produce more value than keeping it afloat, based on a study by the consulting firm Ernst and Young.
The government commissioned another outside consulting firm to conduct the business feasibility study about the mid-sized shipbuilder, which has heightened expectation that it is trying to save it.
STX Offshore and Shipbuilding is also awaiting an audit by an outside consulting firm. The results of the audits of STX and Sungdong are expected to take two months.
Daewoo Shipbuilding and Marine Engineering were on the brink of collapse last year when consulting firm McKinsey and Company concluded that dissolving the firm would be more beneficial
The authorities, however, recommissioned an audit by KPMG in January, which came to the opposite conclusion. The authorities sided with KPMG’s opinion and injected 2.9 trillion won of taxpayers’ money in the weeks that followed to keep it afloat. That was on top of 4.2 trillion won it doled out two years earlier.
Some people are worried that if the government steps in to save lots of insolvent companies for the sake of saving jobs, the companies may never become truly competitive.
“If a company doesn’t hold recovery values, moving swiftly to get rid of such companies will pave the way for new innovative firms to emerge, upgrading the industry’s overall competitiveness,” said Yoon Chang-hyun, a professor of business at the University of Seoul. BY
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