South Korea provides DSME with $2.6b bailout package

Korea Development Bank, DSME’s largest shareholder and main creditor, and the Export-Import Bank of Korea said they would provide funds to boost the shipbuilder’s cash flow and convert its liabilities into equity to cut debt.    South Korean shipbuilder Daewoo Shipbuilding & Marine Engineering (DSME) has been offered a 2.9 trillion won (U.S. $2.6 billion) rescue package, the Wall Street Journal reported Thursday.
   DSME has been hurt by massive losses from it offshore projects. Shipyards globally, but particularly those in South Korea, have been hard hit by the slowdown in the world economy and excess capacity in many segments of the shipping industry.
   Korea Development Bank (KDB), DSME’s largest shareholder and main creditor, and the Export-Import Bank of Korea said they would provide funds to improve DSME’s cash flow and convert its liabilities into equity to cut debt.
   The two state-run banks already provided a combined 4.2 trillion won in aid to DSME in 2015.
   According to the WSJ, KDB said, “In return for this rescue package, we’ll implement rigorous restructuring at the shipbuilder, including deep job cuts and sale of non-profitable businesses.”
   Korea’s primary financial regulator, the Financial Services Commission (FSC), said the bailout would hinge on the condition that DSME’s other creditors, including commercial lenders and private bondholders, would also agree to deep cuts and accept a debt-to-equity swap.
   The WSJ said that earlier this week, FSC Chairman Yim Jong-yong told a parliamentary committee that if there is no consensus among the creditors on a restructuring plan, “various options, including court receivership and a split-up, are under study.”
   In 2016, DSME recorded a loss of 2.7 trillion won compared to a loss of 3.3 trillion won in 2015.
   Looking ahead, KDB, which owns nearly four-fifths of DSME through a series of debt equity swaps and rights offers in past years, said it aims to eventually privatize the shipbuilder while pursuing a quick business recovery, according to the WSJ.   
   Just last month, shareholders of South Korean shipbuilder Hyundai Heavy Industries (HHI), the largest shipbuilder in the world, approved of HHI’s restructuring plans to split into four separate entities, despite strong union opposition.
   According to the Korea Times, HHI CEO Kang Hwan-goo said, “The split will lower the shipbuilder’s debt-to-equity-ratio to below 100 percent. We will do everything we can to help each unit become a leader in its respective field.”
   Meanwhile, fellow South Korean shipbuilder STX Pan Ocean, filed for court receivership in South Korea in May, and Chapter 15 bankruptcy protection in the United States in October.