Spin-off of Defense Unit
According to creditors and financial authorities on August 7, Daewoo Shipbuilding & Marine Engineering Co. (DSME), which comes to a crisis due to the delay in offshore plant delivery, will submit a detailed plan to secure funds to its creditors by the middle of this month.
DSME planned to separate and spin off its special vessel division, or defense unit, by 2018. However, the company now considers advancing its time schedule and raising cash in advance by securitizing its bonds. It will also speed up the plan to downsize the workforce than it planned.
This is due to the fact that DSME can't receive 1 trillion won (US$898.23 million) owing to the delay in delivery of two drill ships to Angola’s state-run oil firm Sonangol and it faces a wall of debt maturing, including corporate bond (CB) and commercial paper (CP), in the coming months. Accordingly, concerns have been growing that the crisis-ridden shipbuilder can go into court receivership in September as it failed to pay its debts.
DSME has taken care of the most urgent problem for now. The company recently agreed with four European ship owners that it would receive US$470 million (523.25 billion won) of payment from them before the delivery of ships. This would allow the company to handle the first expiry of the CPs worth 400 billion won (US$359.29 million) by next month.
However, problems still remain unless DSME solves the delay in delivery to Sonangol in which 1 trillion won (US$898.23 million) is tied up. DSME has the largest amount of debt worth 940 billion won (US$844.34 million) due next year, while Hyundai Heavy Industries and Samsung Heavy Industries have to pay back or roll over 680 billion won (US$610.8 million) and 600 billion won (US$538.94 million) next year. Since the nation’s three shipbuilders, including DSME, are scheduled to deliver offshore plants to ship owners from the second half of this year and next year, additional delays in delivery can add to uncertainty over the cash liquidity concerns.
In addition, the prosecutors have widened a probe into DSME for alleged accounting fraud and called in the incumbent high ranking official of the company. Accordingly, there is a more urgent need for securing funds itself. This is because calls for the temporary suspension of creditors’ support until the current management’s allegations of manipulating the account books are solved are raising. In October last year, creditors decided to provide DSME with 4.2 trillion won (US$3.77 billion) and actually offered a financial support worth 3 trillion won (US$2.69 billion). An official from financial authorities said, “We consider the remaining 1 trillion won (US$898.23 million) of support funds from the government-run bank the last bastion. We will offer it only in case of emergency.”