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Learn from failure

Mar 10,2018
Sungdong Shipbuilding and Marine Engineering, having been awarded a 4 trillion won ($3.7 billion) bailout from creditors over the last eight years, is headed for reorganization. Another troubled midsized shipyard, STX Offshore and Shipbuilding, will be required to undergo rigorous streamlining without additional funding. It, too, could end up in a bankruptcy court if the union does not agree to the layoff plan.

The decision over the two financially-strapped shipbuilders is the first work of corporate restructuring under President Moon Jae-in. The government has vowed that it won’t inject further bailouts. But its outline raises questions of its overly cautious restructuring drive that ended up delaying the turnaround and extending losses.

In November, the government said its corporate restructuring measures will consider industrial impact as well as financial factors. It outsourced due diligence and a turnaround plan to private consultancy firms. Industry watchers suspected the government was dilly-dallying in restructuring to not undermine its campaign commitment to bring more security to the job market.
Last year’s audit concluded that Sungdong’s liquidation value of 700 billion won tripled its going concern value (if bailed out) of 200 billion won.

The voluntary workout arrangement between creditors and Sungdong that started in April 2010 has completely flopped because it was based on mere hope for revival in the global industrial slump. State-lender Export-Import Bank of Korea had to come to its rescue every time the shipbuilder ran short on funds and teetered on the brink of insolvency.

Nearly 8 trillion won went into STX from 2010 to 2017. The two shipbuilders wasted 12 trillion won worth of tax funds under the past two governments. Bailout based purely on politics can result in heavier bills for taxpayers. The government must draw lessons from the failure with shipbuilders in applying restructuring measures on other ailing companies like Kumho Tire and GM Korea.

*JoongAng Ilbo, March 9, Page 34