Partial Settlement
Daewoo Shipbuilding and Marine Engineering (DSME) is going ahead with a measure to collect US$800 million in cash of US$ 1 billion the company should receive from Sonagol, a government-run petroleum company of Angola and the remaining amount in stocks. It is a kind of a desperate measure for DSME to ride out its liquidity crisis by collecting what they can first as it is difficult for Sonagol to overcome its financial difficulties. According to DSME and its creditors on September 1, it was said that DSME was discussing such contents with Sonangol in order to receive money (US$ 1 billion) for two drill ships from Sonangol.
The discussion began as Sonangol became unable to pay all of the money in cash as a financial crisis hit the Angolan oil company. Sonangol is now under the management of its creditors since a drop in oil prices weakened its profitability and some project suffered huge losses.
The financial crisis has been precluding Sonangol from receiving two drill ships that Sonangol should have received last year in the first place for over nine months. This put DSME into the liquidity crisis and compelled the beleaguered Korean shipbuilder to have trouble paying off corporate bonds which will reach their maturity this month.
With the situation deteriorating, Jeong Seong-rip, president of DSME flew into Angola last month. Via a discussion, both sides agreed to deliver the two drill ships by September 30. During the meeting, they also discussed this payment method, too.
This means that DSME made a kind of concession, judging that it will be better to receive 80% of the money first although they will be unable to secure 20% of the money which DSME received in equities right away. “Even though DSME cannot receive US$ 2 billion quite soon, the company can make profit by selling the equities if a drill ship-based project fares well such as a rise in oil prices so the value of the SPC increases,” said a representative of creditors of DSME.
Nobody knows when the money for the drill ships will be paid by Sonangol. This is because although Sonangol agreed on the payment method, but the company does not have money to pay to DSME right now. The creditors led by SC Bank decided to lend money for the ship delivery to Sonangol with a security. But the financial support was suspended as Norwegian Guarantee Institute for Export Credits (GIEK) which promised a joint guarantee with Korea Trade Insurance Corporation shirked its responsibility.
Although a decrease in cash payment mitigated the guarantee burden somewhat, Korea Trade Insurance Corporation and the creditors are still in negotiations over guarantee ratios. Industry watchers say that financial support will be given to DSME if and when a negotiation between Korea Trade Insurance Corporation and the creditors is finalized.