As Daewoo Shipbuilding and Marine Engineering Co. (DSME) successfully completed the bondholder's meeting on April 18, the cash-strapped company has dramatically dodged a court receivership. With bondholders accepting a debt-to-equity swap, Korea Development Bank (KDB) and Export-Import Bank of Korea (Eximbank) will supply up to 2.9 trillion won (US$2.54 billion) to normalize DSME through private management.
After the fifth bondholder's meeting on the 18th, Financial Services Commission (FSC) Chairman Lim Jong-ryong said, “Since all stakeholders have decided to share the pain, DSME has gained an opportunity to recover.”
In order to normalize DSME without a hitch after the additional fund support, the financial authorities plan to check and readjust its business management. It will form a private supervisory commission which will oversee whether DSME properly implements its promised self-rescue measures worth 5.3 trillion won (US$4.64 billion) as well as its “no strike” agreement with yard unions and additional return of wages.
In particular, Kim clearly said that it will transfer the control of DSME from creditors, including the KDB, to private experts through the process of restructuring. This is largely due to the fact that industry watchers have pointed out that the KDB, which has no expertise in the shipbuilding industry, has rather disrupted to normalize DSME as its major shareholder for 18 years
Lim said, “We will set up a private business management committee and thoroughly check whether DSME pursue a management reform, take a self-effort and properly manage the based on business due diligence business every year. Through the business management led by private experts, we will actively help DSME be normalized.”
The last procedure to carry out the normalization plan is to gain the consent from investors with commercial papers (CPs). The FSC needs to secure a 100 percent consent from individual CP investor, unlike bondholders. Currently, DSME has the CPs worth 200 billion won (US$175.52 million) and each individual investor has some 10 billion won (US$8.78 million) worth of the CPs. Lim said, “We expect to gain an agreement from CP investors by the end of this week at the latest. When we finish securing the agreement from CP investors, DSME will be supplied with new funds and push ahead with restructuring in earnest.”
In addition, the authorities will seek to reorganize the overall shipbuilding industry through the divided sale of DSME. Since Samsung Heavy Industries and Hyundai Heavy Industries are now carrying out the restructuring, it is too early to say whether they will take over DSME for now. But, it is planning to change the domestic shipbuilding industry from the current “big three” system to “big two” system through M&A after making DSME a small and sound company with the divided sale.
Kim also said, “We will find a new owner of DSME through M&A. In the process, various plans, including the plan to change the industry landscape from big three to big two systems, will be discussed.”
Meanwhile, banks, which agreed to undertake debt-for-equity swaps up to 80 percent of debts owed by DSME through the self-debt readjustment, need to provide US$500 million (US$569.35 billion won) worth of a refund guarantee (RG) for future orders received by DSME. The KDB and Eximbank will stand surety first but some ship owners can ask for “multiple guarantees” as DSME has a lower credibility and the KDB and Eximbank have a lower safety of capital ratios.
An official from the financial authorities said, “For RG, the ratio of reserves is not that high and the burdens on banks are not that heavy as they stand a secondary surety after the KDB’s first surety. It is too early to talk about RG because it is needed only when DSME wins orders in the future.”