Conditional Workout?
It is expected that the South Korean government will provide up to three trillion won (US$2.6 billion) for Daewoo Shipbuilding & Marine Engineering on certain conditions with the liquidity of the company exhausted. The new fund is likely to be provided in return for a debt workout program and it is likely to give rise to controversies with 4.2 trillion won (US$3.6 billion) already poured into the company in October 2015.
The government and the Daewoo Shipbuilding & Marine Engineering creditors including the Korea Development Bank (KDB) are planning to make the plan public on March 23. The government is currently mulling over a voluntary agreement, debt workout and so on as the certain conditions.
According to the main creditor bank, the shipbuilder is predicted to be in need of two trillion won (US$ 1.7 billion) to three trillion won(US$2.6 billion) in the second half of this year and the first half of 2018, when lots of its corporate bonds mature. The KDB is going to complete the calculation and fix the amount of the fund for restoration next week.
In the meantime, Daewoo Shipbuilding & Marine Engineering announced on March 15 that its annual sales and operating losses totaled 12.7347 trillion won (US$11.1 billion) and 1.6089 trillion won (US$1.4 billion) last year, respectively. The company’s current net loss amounted to 2.7106 trillion won (US$2.3 billion) in 2016, the fourth year of its consecutive losses.
The government’s assistance for the shipbuilder is to prevent any further deterioration of the company’s financial and liquidity conditions as well as a severe economic impact to follow in the event of bankruptcy of the company. According to the government, the bankruptcy is estimated to result in a loss of more than 30 trillion won (US26 billion) attributable to the failure of ship delivery.
As mentioned above, debt workout is likely to be initiated at the same time as the offering of the fund and then principal repayment can be deferred and the interest can be curtailed for the restoration of the company. In addition, the government is said to be considering a reduction in the size of the company based on a merger between some of its divisions such as those in charge of offshore plant business and defense business and other South Korean shipbuilders such as Hyundai Heavy Industries and Samsung Heavy Industries in the event of failure of the restoration.