Pre-packaged Plan for Daewoo Shipbuilding is Looming Large

The National Pension Service (NPS) suggested a new debt restructuring plan for Daewoo Shipbuilding & Marine Engineering (DSME) on April 9. However, the Korea Development Bank (KDB), the main creditor, refused to accept it. Under the circumstances, a pre-packaged plan is becoming more and more likely. Restructuring of the shipbuilder based on the pre-packaged plan is predicted to start on April 21 once debenture holders fail to reach an agreement on the new debt restructuring plan.

According to the plan suggested by the NPS, debt restructuring can be discussed after the corporate bonds of DSME maturing on April 21 are redeemed by the KDB. The plan also includes application to maturity-deferred corporate bonds of the preferential claim granted for the 2.9 trillion won fund to be poured into DSME by the KDB and the Export-Import Bank of Korea, additional capital reduction by the KDB and debt-equity swap ratio adjustment.

The KDB turned down the request for corporate bond redemption. “We have no financial resources to that end and redemption in April will have to do with those holding the bonds maturing on July 11,” the bank explained, adding, “All the financial resources to be put into the shipbuilder should be for its normal business operations and losses and burdens should be shared by every interested party.” The total value of the bonds maturing on April 21 is 440 billion won and the NPS accounts for about 43% of it.

The KDB also refused to accept additional capital reduction and debt-equity swap ratio adjustment, mentioning the principle of loss and burden sharing. However, it said that it can allow the application of the preferential claim on certain conditions. “Although we cannot legally conduct bond repayment guarantee as requested by debenture holders calling for a three-year repayment guarantee with regard to the maturity-deferred bonds, we can use a part of our 2.9 trillion won credit line for redemption if it has room in 2021,” it mentioned.
 
The final decision on whether the debt restructuring plan will become effective is to be made by April 17. The KDB remarked that it could have more talks with the NPS before the deadline but a change in stance is rather unlikely. “90% of the pre-packaged plan has already been completed and we have no time to waste in executing it,” it went on to say.