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DSME’s path ahead still uncertain

Apr 17,2017
The National Pension Service (NPS) finally agreed to go along with a new government-led debt restructuring program for financially-stricken Daewoo Shipbuilding & Marine Engineering (DSME).

Under the scheme, the fund managing public old-age pensions would shift 390 billion won ($343 million) worth of holdings in DSME bonds into equity to ease the shipbuilder’s debt burden. The sum makes up 30 percent of the outstanding DSME bonds, which are worth 1.35 trillion won. DSME will most likely gain a new lifeline from creditors during the meeting next week after the biggest bondholder, NPS, has given its endorsement.

If the NPS remained recalcitrant to debt relief, the elephantine shipbuilder could have headed to court-led prearranged reorganization program as authorities had repeatedly warned.

The prepackaged scheme, institutionalized last year, is still a new concept and yet to be applied. Over 1,300 parts suppliers to DSME may not get their payments on schedule during the court revival process, leading to a chain bankruptcy.

The backlog of 114 vessels could be interrupted if clients cancel their orders due to worries about the future of the shipbuilder and quality of their ships.

Although the lifeline has been extended, its future remains uncertain. The company’s future still hinges on the recovery of the global demand. Clarksons Research recently slashed its outlook on global shipbuilding demand in 2018 by 20 percent.

The state has again resorted to twisting the arms of creditors to come to the rescue of a big company. Instead of persuading them and drawing their willful support, authorities and state lenders more or less gave them an ultimatum that the bondholders would lose most of their money if they did not go along with their plan.

The government has lost credibility as it had promised that the 4.2 trillion won bailout in October 2015 would be the last for DSME.

The NPS’ argument that it must protect losses in the pension funds of 20 million people won more sympathy than the government’s rationale that the fall of a major shipbuilder would bring about disastrous ramifications for the economy.

Presidential candidates have been rushing to the southern coastal region with pledges to save the shipyard. The government’s push to save DSME raises suspicion that it is trying to score points with the next president.

JoongAng Ilbo, April 15, Page 26