Differentiating Approach
STX Offshore & Shipbuilding Co. failed to come out of a state of complete capital impairment even after it used up 4.5 trillion won (US$3.8 billion) of funds received from the creditors in 2013. Accordingly, the creditors are highly likely to put the company under court receivership.
Industry sources say that the court receivership is interpreted to follow the financial authorities’ shipbuilding industry restructuring plan to save the nation’s top three shipbuilders and close down ailing small and mid-size shipbuilders.
STX Shipbuilding went into a debt restructuring program with the creditors in 2013 due to its liquidity crunch. However, the company failed to be out of the state of capital impairment as its operating losses continued. The creditors decided to pump a total of 4.5 trillion won ($3.8 billion) into the cash-strapped company to help it survive at the end of last year, but they have inevitably begun discussing it again because of the lack of new orders since the end of last year and the continuing stagnant conditions in the global shipbuilding industry.
However, there will a public outcry for the fact that the government and main creditor Korea Development Bank (KDB) had provided trillions of won to STX Shipbuilding for three years since the implementation of the debt restructuring program in 2013 and now they are bringing the matter to a conclusion, holding them responsible. This is because the government and the KDB have eventually decided to abandon STX Shipbuilding after they had been “juggling bombs” due to fears of a huge blow caused by restructuring and even large shipbuilders, including Daewoo Shipbuilding & Marine Engineering, have liquidity problems.
Both inside and outside the financial industry sources points out that trillions of won of taxpayer money were wasted due to groundless optimistic views in the shipping industry and lack of specialty of the creditors. The bigger problem is that such incident can occur again in the process of restructuring large shipbuilders, like Daewoo Shipbuilding, in the future.
This is largely due to the fact that the two companies are in the same situation that they have been offering trillions of won of funds despite no distinct possibility for revival and nobody knows the reality of the shipbuilders.
Once STX Shipbuilding is placed under court receivership, STX Group, which was founded by Chairman Kang Duk-soo, will be completely dissolved. In that case, STX subsidiaries which are barely keeping its head above water with the self-restructuring agreement, such as STX Heavy Industries and STX ForceTec, are highly likely to go belly up one after another. This is because the creditors were reluctant to put the company under court receivership to the end at the end of last year.
An official from the creditors said, “STX Heavy Industries relies 15 percent of its sales on STX Shipbuilding, and STX ForceTec depends practically 100 percent of its sales on other STX Group affiliates. Therefore, the group’s subsidiaries will be hard hit file by file when STX Shipbuilding goes under court receivership.”
Moreover, STX Corporation has accounts receivable worth about 100 billion won (US$84.53 million) for STX Shipbuilding. When the company sets it as bad debts expenses because of the court receivership, it will be in the state of capital impairment.
In addition, the creditors will have to bear the “refund guarantee (RF) calls” worth more than 1 trillion won (US$845.31 million), being hard hit, when STX Shipbuilding goes under court receivership.
When receiving shipbuilding orders, shipbuilders specify the call option for RF in the contract in the case of court receivership. Accordingly, the creditors have to pay back RF in cash if STX Shipbuilding is put under court receivership. An official from the creditors said, “Not all ship owners will not exercise the call option for RG but additional damages will be inevitable.” So, the creditors will decide when to put the company under court receivership after considering the total amount of RG and liquidation value.”
For the creditors of STX Shipbuilding, commercial banks, such as Woori Bank, KEB Hana Bank and Shinhan Bank, exercised the purchase objection right and left the creditor group. Accordingly, the creditors currently include only government-run and special banks, like KDB (48%), the Export-Import Bank of Korea (21%) and NongHyup Bank (18%).