South Korea yesterday offered troubled Daewoo Shipbuilding & Marine Co a new US$6 billion bailout, as the giant firm’s financial crisis worsens.
Daewoo is the world’s largest shipyard in terms of its order book and was previously given a 4.2 trillion won (US$3.8 billion) aid package in 2015.
It is majority-owned by state-owned banks. Previously it was a subsidiary of the now-defunct Daewoo Group, once the country’s second-largest conglomerate, but which collapsed in the 1990s.
The shipbuilding unit survived, only for the sector to suffer turmoil of its own in the face of a global glut of vessels and ferocious price competition from China.
It suffered a 2.7 trillion won net loss last year, with its debts 27 times greater than its capital.
The 6.7 trillion won (US$6 billion) bailout envisages 2.9 trillion won in fresh loans from the Korea Development Bank (KDB), its largest shareholder and main creditor, and the Export-Import Bank of Korea, also a shareholder.
The money is conditional on other lenders and bondholders agreeing another 3.8 trillion won in debt-for-equity swaps and rollovers.
The new rescue plan sparked criticism that Seoul was backtracking on earlier promises to stop injecting fresh funds into Daewoo.
“We’re very sorry that we’ve failed to assess more conservatively the industry’s long-term slump and Daewoo’s latent downside risks,” KDB chief executive officer Lee Dong-geol said.
Daewoo was in “critical” financial condition and would face insolvency next month, when it has to repay large corporate bonds, unless “strong and comprehensive measures” were taken, he said.
Economist Chun Seong-in at Hongik University lambasted the South Korean Ministry of Strategy and Finance for being “inconsistent, belated and unfair” in its dealings with the company, which has more than 10,000 employees.
The ministry “missed a chance for a radical corporate restructuring” in 2015, forcing the government to inject additional funds, he said.
The global shipbuilding slump is expected to ease from next year, when, according to Yonhap news agency, the South Korean government hopes to sell a downsized and reborn Daewoo to reduce the country’s “Big Three” shipbuilders — which also include Hyundai Heavy Industries Co and Samsung Heavy Industries Co — to two, for better economies of scale.
The three racked up a collective loss of 8.5 trillion won in 2015.
Daewoo Shipbuilding’s former head, Ko Jae-ho, was in January sentenced to 10 years in prison for manipulating the company’s books in 2013 and 2014, and using them to raise bank loans.
Investors sustained serious financial losses as the company’s credit ratings and stocks plunged after the window-dressing came to light.
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