FSC Chairman Says ‘Ready to Put DSME under P-Plan’

As the National Pension Service (NPS) and the Korea Development Bank (KDB) have failed to reach an agreement over the debt readjustment for corporate bonds of the debt-ridden Daewoo Shipbuilding & Marine Engineering (DSME) and negotiations have come to a deadlock, financial authorities have decided to call an emergency meeting.

The two sides had a disagreement when they exchanged a performance letter of commitment for final settlement on April 14. After marathon meetings earlier that lasted two days, they agreed to extend the maturity of 50 percent of expiring corporate bonds for three years, pay them back in installments over a three-year period and make a separate account for guarantee, drawing up a performance letter of commitment.

However, the KDB reacted furiously, saying that the NPS belatedly sent a revised performance letter of commitment, including repayment guarantee, on the 15th. Previously, the NPS demanded main creditor KDB provide a full payment guarantee for the corporate debt they bought from DSME but the KDB refused to provide such a guarantee but offered a “guarantee” equivalent to its earlier request. The state-run bank said that the NPS agreed on that but suddenly overturned the decision.

With the conflict between the two sides deepening, the Financial Services Commission (FSC) has decided to hold a meeting for DSME’s pre-packaged plan (P-Plan), a kind of court receivership, which was tentatively cancelled. During a press briefing at the Government Complex Seoul on April 16, FSC Chairman Lim Jong-ryong said, “We will go over the documents for the P-Plan today for the last time. We are working closely with related authorities in order to minimize side effects caused by the implementation of the P-Plan.”

The government has finished administrative work to place DSME under the P-Plan. When DSME fails to readjust its debts at the bondholder’s meeting to be held from the 17th to 18th, the company will be immediately placed under the P-Plan.

In a bid to brace for bondholders rejecting debt readjustment programs, the FSC now jointly operates a task force (TF) for the P-Plan with the KDB, the Export-Import Bank of Korea (Eximbank), DSME, accounting company and law firm. When DSME implements the P-Plan due to the failure in debt readjustment, the FSC will send a comfort letter of auditors to major ship owners which awarded a shipbuilding contract to DSME. It will also run an on-the-spot response team to prepare for a chain bankruptcy of partner companies, cancellation of shipbuilding orders and unemployment and help extend the maturity of existing guarantees and loans and postpone the repayment as well as support emergency management funds.

Lim said, “When the debt readjustment programs are voted through at the bondholder’s meeting, we will proceed with follow-up procedures, including approval from the court, without setbacks and complete a voluntary restructuring. If the programs are voted down, we will place DSME under the P-Plan as soon as possible in order to relieve the market instability.”

Some say that the meeting on the day can be a sort of pressure on the settlement between the NPS and the KDB. As the two sides have formed a consensus not to go with the P-Plan and reached an agreement on a large framework, they can resolve differences over details and procedures.