After strike, KDB seems to have had enough of DSME

Daewoo Shipbuilding & Marine Engineering (DSME) employees hold a rally opposing a subcontractors' strike at DSME's shipyard in Geoje, South Gyeongsang, on July 20. [SONG BONG-GEUN]

A 51-day strike by subcontractors of Daewoo Shipbuilding & Marine Engineering (DSME) exposed the company’s vulnerability to labor problems and cost it heavily, a major setback for a company up for sale.

The strike by DSME’s subcontractors, which began on June 2, ended with the company and union reaching an agreement on a wage increase July 22. Union members returned to work the next day.

But DSME lost confidence from its largest shareholder, the Korean Development Bank (KDB). The KDB announced during and after the strike it would no longer support DSME financially and would cut off public funds to help the company. Without support from the KDB, DSME could face numerous difficulties — most of all in finding a buyer.

The KDB, which owns 55.7 percent of DSME, has been overseeing operations of the company for the past 22 years. DSME has been in the process of restructuring its creditors and finding a new owner since 2016. Last January, a merger with Hyundai Heavy Industries was canceled due to opposition from the European Union.

DSME’s finances are not solid. According to the company, the company’s accumulated losses due to the strike totaled 816.5 billion won ($622.2 million), including lost sales of 646.8 billion won, fixed costs of 142.6 billion won and delays in payments for 11 ships that totals 27.1 billion won. DSME’s debt-to-equity ratio has exceeded 500 percent and its losses over the past ten years exceed 7 trillion won.

Public funds invested in DSME since 2000 amount to 12 trillion won. DSME recorded an operating loss of 1.75 trillion won last year, and in the first quarter of this year, the company’s operating loss was 470.1 billion won.

On Thursday, KDB Chairman Kang Seog-hoon said a sale of the company, including the option of a split sale, was being considered, reversing an earlier stance.

“We will review various sales plans including a split sale of DSME,” said Kang. “Nothing has been concretely decided at the moment."

But the possibility of DSME being sold in units – the military business separate from the civilian business – is unlikely, according to analysts.

“It will be difficult to find a buyer for DSME at present,” said Kim Yong-min, an analyst at Cape Investment & Securities. “No domestic companies are willing to take it over, except for perhaps Korea Shipbuilding & Offshore Engineering. An overseas acquirer is also a difficult propostion; as state-owned banks have financially backed DSME so long, it would raise critical issues involving public opinion.”

If the military and civilian businesses are separated, overall efficiency would be lowered, analysts say. After Kang’s remarks, the Korea Metal Workers’ Union expressed opposition to a split sale, saying in a statement that such a sale would “lead to a collapse of the domestic shipbuilding industry.”

The government announced on July 22 that it could hold some people criminally responsible for the strike, with President Yoon Suk-yeol having said the day before that the strike was “illegal.”

“The strike is over, but civil and criminal issues remain,” a government official said in an interview with local media on July 22. “The government plans to hold the labor union responsible.”

Kweon Seong-dong, floor leader and acting head of Yoon's People Power Party, called for the resignation of DSME CEO Park Doo-sun Monday.

"The management of DSME, including the CEO, should take responsibility for the lackluster operations of the company and step down," said Kweon at the National Assembly in Yeouido, western Seoul, on July 25. "A new management should come up with a turnaround plan."

BY LIM JEONG-WON [lim.jeongwon@joongang.co.kr]