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FSC considers more funds for indebted DSME

Shipbuilder may get cash before a new president takes office
Mar 16,2017
The Financial Services Commission, the country’s top financial regulator, is considering giving more cash to indebted Daewoo Shipbuilding & Marine Engineering before a new Korean president is elected in May.

“It is possible to pass the issue on to the next administration, but that will only make things worse,” a source at the Financial Services Commission said.

The regulator and the state-run Korea Development Bank, the main creditor of DSME, have sifted through a draft financial assessment by accounting firm Samjong KPMG to estimate how much funding is needed to keep the troubled shipbuilder afloat. Analysts said that the size could amount to 3 trillion won ($2.6 billion) in order to salvage the company, which has been beset by scandals involving accounting fraud and embezzlement as well as dwindling contracts.

“Based on the final version of the report that will come out on Friday, we will devise a mid- to long-term plan along with creditors,” the source said.

The Financial Services Commission will likely announce the measures as early as March 23 when a cabinet meeting is scheduled to be held, according to multiple media outlets.

The move indicates that the government’s initial bailout plan of 4.2 trillion won ($3.7 billion) announced in 2015 was not enough to resolve the liquidity crunch, even though the government reassured the public that the funding was sufficient and that no additional taxpayer money would be needed.

Several measures, including additional funding and a debt workout program, are in the regulator’s cards.

Analysts believe the most likely action will be fresh funds. But since the public has been skeptical of the government’s bailout plan, the Financial Services Commission and Korea Development Bank might push other creditors, including Woori Bank, Shinhan Bank and KB Kookmin Bank, to help provide more cash or other forms of preferable instruments such as a debt-equity swap or pushing back DSME’s deadline to pay back its corporate bonds.

A more radical step is a debt workout program, but the source at the Financial Services Commission sees the chances as slim. “If a company enters a workout program, it means that the ongoing contracts can be canceled, which can deal a blow” to DSME, he said.

DSME said in an electronic disclosure that it is looking at different ways to turn around the company, but nothing has been decided.

The shipbuilder has to cope with over 900 billion won in corporate bonds that are about to reach their maturity this year. The most impending deadline is April, when 440 billion won are due to mature, followed by another 300 billion won in July and 200 billion won in November.

Even with state support, DSME has suffered an operational loss of 1.6 trillion won and posted losses for four consecutive years.


BY PARK EUN-JEE, HAN AE-RAN [park.eunjee@joongang.co.kr]