Favorable Signal
The National Pension Service (NPS), which had been negative about the restructuring of the debt of Daewoo Shipbuilding & Marine Engineering (DSME), changed its stance on March 29 by saying that it would examine the issue with prudence and in a way that can contribute to the profitability of itself. Some individual investors changed their stance in the same way, too.
That day, the NPS called for DSME and its major shareholder Korea Development Bank (KDB) to provide more data. The NPS is planning to examine legal risks and value preservation regarding companies investing in DSME until the meeting of debenture holders scheduled for April 17 or 18 before making a final determination on the issue. Earlier, the NPS refrained from having talks with the KDB and the financial authorities in the wake of the Choi Soon-sil scandal.
The debenture holders including the NPS are claiming that DSME’s debt restructuring plan is in favor of the creditors including the KDB. “The creditors have their collateral and a preferential claim for new funds at the same time,” said a pension fund, adding, “Although the refund guarantee provided by the creditors has a large size, the burden disappears once ships are built and delivered, which means conditions are in favor of the creditors.” An individual investor echoed by saying, “The recent bond maturity extension for up to another six years is for the creditors to escape after reaching the maturity of the refund guarantee.”
In response, the creditors remarked that the preferential claim is not what is legally ensured. DSME also explained, “Even after the maturity of the refund guarantee, the creditors have to set a new refund guarantee once a new shipbuilding contract is signed.” It went on to say, “Even if the creditors take a ship as a collateral, it should be sold with a discount of 20% to 30% or sold after being disassembled into scrap metal parts that require larger processing costs, which means it is very hard to turn the collateral into cash.”
In the meantime, trading of DSME shares was limited on March 29 as a result of Samil PwC Korea’s qualified opinion on its financial statements for the fiscal year of 2016. The shipbuilder was excluded from the KOSPI 200 Index, too. Qualified opinions were given on its business performance for the first half and third quarter of last year as well. Trading resumption is scheduled for September this year. The company can be delisted if it fails to obtain an unqualified opinion on its performance for the first half of this year.