Contingency Plan Required
Korea Development Bank (KDB) declared its entrance into a “contingency plan,” with the judgment that Daewoo Shipbuilding & Marine Engineering (DSME) is now facing the “Worst Case,” which cannot be resolved with the original self-restructuring plan of 5.35 trillion won (US$4.65 billion).
A senior official at KDB, the main creditor of DSME, said on July 28, “The situation of DSME has got worse recently, and (we) decided to enter a contingency plan as we judged 2 trillion won (US$1.73 billion) will be needed in addition to its existing self-rescue plan.” He added, “KDB originally planned to decide (whether to start a contingency plan or not) after looking at the situation in a long-term view, but (we) internally came up with such a decision as a means of an early response since the order performance of DSME was not so good.”
Prior to this, DSME had established its first 1.85 trillion won worth self-restructuring plan in October last year. At that time, KDB and the Export-Import Bank of Korea, both of which set 4.2 trillion won (US$3.65 billion) liquidity support to DSME, forecast this year’s order performance to be US$10.8 billion.
With the order performance significantly below expectation, the creditors, however, lowered this year’s target to US$6.2 billion, down 42% or US4.6 billion from the original target. According to the lowered target, DSME presented its second 3.5 trillion won (US$3.04 billion) self-restructuring plan in June, including a 30% reduction of shipbuilding and sell-offs of 14 subsidiaries like Daewoo Shipbuilding & Marine Engineering Construction.
An official at KDB said, “KDB has requested DSME to prepare an additional self-restructuring plan of 2 trillion won (US$1.73 billion) size, adding, “We are aiming at implementing a total 7.35 trillion won (US$6.39 billion) self-restructuring plan by adding the 2 trillion won (US$1.73 billion) to the original 5.35 trillion won (US$4.65 billion).” He added, “Considering an aftermath resulting from the temporary shipbuilding reduction, we will let the new approximate 7 trillion won (US$6.39 billion) level self-restructuring plan to be implemented over approximately five years.” With the contingency plan, DSME has to present ways to reduce shipbuilding worth 2 trillion won.
Earlier, Lim Jong-ryong, chairman of the Financial Services Commission had said, “DSME can be forced to a contingency plan if its orders this year do not reach USS3.5 billion,” in June when he announced the restructuring plan.