Daewoo Shipbuilding & Marine Engineering (DSME) is likely to survive thanks to the flow-in of fresh money, as the National Pension Service (NPS), a major bondholder of the cash-strapped shipbuilder, accepted the debt rescheduling proposal made by the Korea Development Bank (KDB)-led creditors at midnight on April 16.
The NPS, which owns some 30 percent of the shipbuilder's corporate bonds, and KDB had been at a weeks-long skirmish over the debt rescheduling plan, with the former claiming the largest shareholder (KDB) should take more responsibility in supporting the cash-strapped builder, while the latter says that it has no room for additional support for the shipbuilder.
The NPS and KDB, however, succeeded in managing to narrow down their differences after a late-night meeting on Saturday (April 15) between KDB Chairman Lee Dong-geol and NPS Chief Investment Officer Kang Myoun-wook. During the meeting, Lee proposed that the KDB guarantee the repayment of corporate bonds through an escrow account, if bondholders including the NPS comply with the government's request. Under the arrangement, if KDB places money for repayment into an escrow account, the NPS can collect its receivables without risks of insolvency.
The NPS said on Monday (April 17) that it agrees to the KDB's plan, saying "It will be favorable for the pension fund's profitability to accept the debt rescheduling plan."
With the remark of the NPS, a series of DSME bondholders' meetings were held to determine whether to agree to the plan, under which they provide a debt-equity swap on half of their bonds and postpone the expiration of the remainder for three years. Last month, the government and KDB asked DSME bondholders and commercial paper holders to roll over 50 percent of their receivables for three years and swap the remaining holdings for equity in the shipbuilder. The NPS holds the largest number valued at 390 billion won (US$350 million).
DSME said that up to 99 percent among participants in the meetings approved the plan, including major players such as the NPS, the Korea Teachers' Pension and Korea Post.
Behind the deal was a pressure by the Financial Services Commission (FSC). Prior to the agreement, the Financial Services Commission (FSC) on April 16 pressured the NPS to accept the final offer from shareholders of the debt-ridden shipbuilder in order to avert its bankruptcy. FSC Chairman Yim Jong-yong told reporters on the day that the NPS should agree to the debt rescheduling plan for DSME, which was ironed out by the KDB and the Export-Import Bank of Korea (Eximbank), the two main shareholders who have been seeking to extend 2.9 trillion won (US$2.6 billion) in new loans to the ailing shipbuilder.
"Given that the KDB, the Eximbank and DSME have made the best possible concessions to the NPS and other bondholders, they must make a reasonable decision in return," Yim said. "If the bondholders decide to get onboard, we will take follow-up steps to start a workout scheme for the shipbuilder. But if they decide not to accept the plan, the government will immediately put the company under a “pre-packaged plan” to minimize its adverse effects on the national economy." The plan is a mixture of court receivership and a debt workout program.
On the previous day (Saturday, April 15), the KDB and the Eximbank informed the NPS that they would deposit 50 percent of the 1.55 trillion won (US$1.39 billion) worth DSME corporate bonds and commercial papers, which are held by the NPS and other investors, in an escrow account. The DSME would also pledge to offer 100 billion won (US$90 million) to bondholders as collateral.
DSME has been under the situation it has to declare bankruptcy if the pension fund and other bondholders refuse to extend the maturity of expiring bonds or commercial papers.