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On the way to a zombie

Few would pass up the option of recouping at least half of what they had put into the shipbuilder.
Mar 24,2017
Too-big-to-fail often benefits most during election season. A collapse of a company with thousands of jobs at stake suddenly becomes “valuable” as the job loss translates into loss of votes. Although they are ailments to the economy and society, no candidates dare to shoot them down.

U.S. Senator Bernie Sanders of Vermont introduced a bill in 2015 to break up the country’s biggest banks “Too Big to Fail and Too Big to Exist” because it can trigger an economic crisis. “No single financial institution should have holdings too extensive that its failure could send the world economy into crisis,” he argued. Sanders proposed that such institutions be banned from using customer money to make speculative activities on the financial market. His proposal has never been acted out. Nevertheless, he proposed such a bold initiative before announcing his candidacy for presidency in 2016. It is no wonder such an ambitious plan never went through.

Daewoo Shipbuilding & Marine Engineering follows the typical “saving too-big-to-fail” campaign recipe in Korea. First, the government and state creditor bank raise a scare. The Korea Development Bank warned as much as 58 trillion won ($52 billion) could go down the drain along with the DSME should it go bankrupt. Then they talk tough. They suggested a prepackaged bankruptcy program for DSME — a fast-track reorganization scheme with pre-arranged debtor-in-possession financing so that the company could escape from bankruptcy within three to four months. Because the procedure has protection from the bankruptcy court, unsecured creditors may be forced into write-off and end up losing their money.

After they scare the debt-holders, authorities propose an alternative. They suggested the option of a voluntary workout where creditors agree to restructure the debt by a haircut, or debt-to-equity swap. Financial Services Commission chief Yim Jong-ryong warned legal procedures are inevitable for DSME if creditors do not agree upon a voluntary program. Its regulatory arm Financial Supervisory Service has already strong-armed the bank executives. The plan may be set to pass the broad bondholders and creditors meeting next month. Few would pass up the option of recouping at least half of what they had put into the shipbuilder instead of none.

The work of the government and state creditors stops here. The pitching is picked up by politicians during the campaign season. Moon Jae-in, former head of the main opposition Democratic Party during his visit to southern coastal Changwon said that a “dramatic” measure is needed to save the shipbuilding industry. “Once it survives the slump period, the industry will become stronger and continue to serve as the mainstay for Korean exports and economy,” he declared.

Moon, a sudden expert in shipbuilding, said creditors must share the burden and the damage to workers and parts suppliers should be kept to a minimum. His solution did not veer from his typical categorizing of what is bad, or the mainstream, and what is good, or the weaker party. The bad is the rich institutional creditors. The good, or weaker, that justifies protection is the working class.

Yim argued that saving DSME serves national interests. The faster the better, he advised. But a bailout must come with the condition of rigorous self-rescue. Yim said the shipbuilder would have to attach a consent pledge from the labor union for any new rescue plan. But that is not enough. The state lenders secured the labor union’s approval when they carried out a rescue package of 4.2 trillion won in 2015. But the shipbuilder carried out just a third of what it had promised by the end of 2016. Its retrenchment in payroll stopped at 9 percent, suggesting that the company shed nine jobs although it had vowed to do away with 100. The cut also was restricted to office jobs.

The DSME will stay “Too Big to Fail” unless authorities consider the option of breaking up the company and selling its assets. Former British Prime Minister Winston Churchill said, “In finance, everything that is agreeable is unsound and everything that is sound is disagreeable.”

JoongAng Ilbo, March 23, Page 30

*The author is an editorial writer of the JoongAng Ilbo.

Yi Jung-jae