Irritating Situation
The fate of Daewoo Shipbuilding & Marine Engineering (DSME) has become uncertain until the middle of next month when the government decides on whether to provide new financial support to the company. Accordingly, there are concerns that the current situation can adversely affect DSME’s contracts which are almost finalized.
According to industry sources on March 28, DSME was supposed to award two contracts at the end of this month and next month. However, ship owners are delaying to finalize the contract and watch the situation as there are rumors that DSME can start a free packaged plan (P-Plan), which consists of court receivership and workout program, next month.
Previously, DSME was in negotiations to finalize the contracts with Maran Tankers Management, a subsidiary of Greece-based Angelicousis Group, as early as within this month to build three very large crude carriers (VLCCs). When DSME succeeds in winning an order for three 300,000-dwt VLCCs, the contract was expected to worth US$250 million (278.38 billion won).
In early February, DSME signed a letter of Intent (LOI) with U.S.-based Excelerate Energy for the delivery of up to seven 173,400-cbm floating LNG storage and regasification units (LNG-FSRUs). However, the formal contract will also be adversely affected by the fate of the company. The formal contract award was initially scheduled in April.
Currently, the two companies are now in negotiations about detailed terms, including contracted price. Considering the current market price of a FSRU worth US$230 million (256.11 billion won), DSME was expected to obtain the order worth US$1.6 billion (1.8 trillion won) when building seven FSRUs.
However, DSME can have difficulty in finalizing the formal contract when the company starts the P-Plan.
Until now, DSME has declared an all-out war on winning overseas orders in February and March in order to overcome its liquidity crisis and DSME President Chung Sung-rip has personally sought to obtain orders from customer companies which are deeply connected and have built on mutual trust with DSME. This is because receiving down payment from new orders is the fastest way to solve the liquidity problem.
However, DSME’s new orders will be adversely affected until the middle of April when it is confirmed whether the company will start the P-Plan after a bond holders meeting as the financial authorities and creditors have decided to inject 2.9 trillion won (US$2.6 billion) of new funds into DSME on a precondition of its self-regulating debt readjustment.