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Billions in gov’t aid for Gunsan, Tongyeong

Mar 09,2018
The government will dole out 240 billion won ($223 million) in financial aid to Gunsan, South Jeolla, and Tongyeong, South Gyeongsang, two cities on the brink of mass industrial layoffs.

Gunsan is home to an auto plant that GM Korea is threatening to shut down in May, while Tongyeong is the base of Sundong Shipbuilding and Marine Engineering, which creditors have decided to push into court receivership.

Changwon, South Gyeongsang, was not included in the government’s support plan after a creditor decided to try to turn around cash-strapped STX Ocean and Shipbuilding.

Finance Minister Kim Dong-yeon announced Thursday that the financial aid will include 130 billion won in loan guarantees for contractors of GM Korea’s Gunsan plant and Sundong Shipbuilding and Marine Engineering; a 50 billion won special management stabilization fund to help small businesses in the two areas; and a 60 billion won special local credit guarantee fund. The government will also extend the maturity by a year of loans taken out by local companies from state-owned financial institutions such as the Korea Development Bank, Industrial Bank of Korea or the Export-Import Bank of Korea. It is asking commercial banks to do the same for businesses in the two areas.

“The first phase is to provide emergency liquidity, ease the burden on businesses and provide actual support that would help workers that are affected,” said Kim. “We will come up with a second stage of measures as soon as possible after collecting the opinions of people in the affected areas.”

The government was also open to the idea of creating a supplementary budget to support Gunsan and Tongyeong.

The move came on the same day the government decided to end its support for Sundong Shipbuilding and Marine Engineering.

“The creditor has analyzed the two companies [Sundong Shipbuilding and Marine Engineering and STX Ocean and Shipbuilding] in the last two months based on a study by consulting firms,” Kim said. “[After reviewing the companies’ competitiveness and the industry’s situation] filing for a court-led restructuring of Sundong Shipbuilding and Marine Engineering has become inevitable, while STX Offshore and Shipbuilding will have a month to come up with a turnaround plan.”

For Sundong Shipbuilding and Marine Engineering, a court will look into a turnaround plans that will include the possibility of debt adjustments. If the court comes to the conclusion that the shipbuilder is not worth saving, the company will start taking steps for liquidation.

According to a preliminary study by consulting firm Ernst and Young, it would be more profitable to liquidate the company than to keep it afloat. Creditors will be able to recover 700 billion won in a liquidation.

Creditors - particularly the Exim Bank - will take a bath if the company is liquidated. As of 2016, creditors have investments of 3.8 trillion won in the company, including debt-for-equity swaps. Some 3.2 trillion won is the Exim Bank’s.

Even if a court decides on a restructuring of the shipbuilder, Exim Bank will likely suffer a massive write off.

But the government has decided to give a chance to STX Offshores and Shipbuilding, which has to come up with a plan to cut costs that could include lay offs.

One of the key reasons STX Offshores and Shipbuilding is being given another chance is that it has a relatively larger number of orders.

While Sundong Shipbuilding and Marine Engineering currently has five orders, STX Offshores and Shipbuilding has 16.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]