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Ground Shrinking beneath DSME’s Feet
Careening off a Cliff
Ground Shrinking beneath DSME’s Feet
  • By Jung Min-hee
  • July 22, 2015, 07:45
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The DSME shipyard.
The DSME shipyard.

 

Controversy is brewing over who should be responsible for the insolvency of Daewoo Shipbuilding & Marine Engineering (DSME). Many experts claim that the Korea Development Bank (KDB) should be responsible for its resuscitation, but the others point out this is yet another sacrifice on the part of the public sector to revive a private company. The KDB said on July 21 that it would carry out due diligence for a couple of months to come, so as to find out how bad things are and figure out appropriate solutions.

The DSME was spun off from the shipbuilding division of Daewoo Heavy Industries back in 1999, when the Daewoo Group was subject to corporate restructuring in the wake of the IMF bailout, and was rehabilitated in 2001 at an investment of 2.9 trillion won (US$2.5 billion) in public funds. The KDB has a 31.46 percent share of the DSME, followed by the Financial Services Commission (12.15 percent) and the National Pension Service (4.0 percent). Korea EximBank has invested approximately 12 trillion won (US$10 billion) in it, and the KDB has provided about 4 trillion won (US$3.4 billion) as well. KB Kookmin Bank, Busan Bank, Woori Bank, and Korea Exchange Bank have granted long-term and short-term loans, too.

At present, the company has huge losses with regard to its offshore plant businesses and the like. With the impact predicted to be transferred to the public sector and private banks, the financial sector has called for the KDB to step up, and the Korea Financial Industry Union made a statement to this effect on July 21. Although it is forecast that at least 4 trillion won (US$3.4 billion) would be required for refund guarantees, lending, recapitalization, and so on, the KDB’s stance is that self-help measures such as a reduction in personnel and the disposal of less viable subsidiaries should come first, so that fundamental problems can be tackled.

The DSME has 13,657 employees. According to its quarterly report, it paid an average of 16.2 million won (US$14,060) to each of them in the first quarter of this year. The DSME labor union recently had the 17th round of wage negotiations with the management, but failed to reach an agreement. The union made little concession regarding their demands, even though the 17th round was preceded by the exposure of the conditions of the company. “It is too early to talk about a layoff while the magnitude of insolvency has yet to be figured out,” the DSME mentioned, continuing, “Each and every one of us will try hard to start fresh.”

“The crisis of the DSME can be attributed to multiple factors, including an ongoing recession in the industry, the limitation of the corporate governance structure hindering the adoption of an appropriate ownership, and the KDB’s poor management; and these problems need to be tackled without any delay, based on DSME employees’ introspection and reality checks, and the creditors’ additional assistance,” said an industry insider, adding, “Otherwise, they will see the government initiating large-scale restructuring across the entire shipbuilding industry.”