War of Nerves
The Korea Development Bank (KDB) clarified its negative position to the demands of largest shareholders of Daewoo Shipbuilding & Marine Engineering (DSME) for the additional capital decrease and the decrease in price of newly-issued stocks. This is irritating the commercial banks who will be able to make profits from debt for equity swaps when the KDB, the largest shareholder additionally cut down on the capital and lower the issuance price of new stocks. But as the KDB dismissed it, signaling a bumpy road ahead until the very end.
"We do not consider additional burdens such as an additional capital decrease by the largest shareholder of DSME," said an official of a financial watchdog under the Korean government on April 2. The reason why financial authorities and the KDB took a tough stance is that they judged that the KDB already carried out a primary role in normalizing its operations, such as cancelling stocks linked to the insolvent operation of DSMS last year ahead of commercial banks. In December, last year, the KDB canceled 60 million shares of DSME after the reduction of authorized capital. The 60 million shares were all of equities (22%) held by the KDB before the KDB injected 4.2 trillion won (US$3.7 billion) in the ailing shipbuilder in October 2015.
The Korean government also clarified its position not to accept the request to lower the issue price of new shares in accordance with a debt for equity swap. The KDB and creditors are planning to issue new shares for the price of 40,350 won (US$361) per share. If the KDB decreases DSME’s capital or lowers the issue price, it will be advantageous as it will increase the amount of equities held by other creditors. If a debt restructuring plan is confirmed as planned by financial authorities and the KDB, the KDB will own 56% equities in DSME, bondholders 17.5% equities and commercial banks 13.5%, respectively. The government is sticking to a position to go straight to a prepackaged plan (P plan) if creditors such as commercial banks fail to adjust debts.
The government, however, is expected to keep open a possibility of lowering the interest rate of permanent bonds held by the Export-Import Bank of Korea from 3% to 1% among the demands of commercial banks. The KDB plans to receive agreements on debt restructuring from commercial banks by April 7. The National Pension Service will determine its position before April 17 when a bondholders meeting will be held.