Another Hurdle
As individual investors made an appeal against the court’s decision to approve the assembly of bondholders of Daewoo Shipbuilding & Marine Engineering (DSME), there are growing concerns that DSME’s debt readjustment can be delayed. Not only creditors, including commercial banks, but also bondholders, like the National Pension Service, held an assembly and practically agreed on the readjustment of DSME’s debts. However, the debt readjustment, which can determine the fate of the company, is being delayed due to the opposition of some individual investors.
According to financial authorities and creditors on May 7, the Tongyeong branch of Changwon Regional Court approved DSME’s corporate bond debt readjustment on April 21. But, it ceased to have effect after individual investors made an appeal against the court’s decision later.
Since the decision was made based on procedural validity, the court will not reverse the decision on the debt readjustment. However, DSME, which goes through a liquidity crisis every month, will have difficulties to normalize the business as its debt readjustment is being delayed. In addition, the company can face a prolonged delay when individual investors protest against a decision in the second trial and appeal to the Supreme Court.
Banks agreed to convert 80 percent of DSME’s plain bonds worth 700 billion won (US$616.58 million) into equity and to extend the maturity of the remaining 20 percent for five years. In addition, they also agreed on a multi-level refund guarantee (RG) worth US$500 million (567.55 billion won) for future orders received by DSME. However, commercial banks can be reluctant to provide a debt-equity swap and RG on the ground of further litigations.
The state-run Korea Development Bank (KDB), DSME's main creditor, plans to provide funds to DSME by the end of next week. The bank decided to provide 4.2 trillion won (US$3.7 billion) of funds to DSME in October 2015 and will provide 380 billion won (US$335.01 million) first. As DSME is not required to make repayment for its debts now, the company has a lower chance of undergoing a sudden liquidity crisis. However, this situation is prolonged, DSME will not know when it will be provided with new funds of 2.9 trillion won (US$2.56 billion) from the KDB and the export-import Bank of Korea. DSME is said to be persuading the individual investors to drop the appeal. However, some pointed out that it is a loophole that a large company like DSME faces difficulties in carrying out a self-rescue restructuring plan when only one or two individual investors go to litigation, though most creditors reached an agreement.