DSME rescue plan draws backlash

The labor union of the troubled Daewoo Shipbuilding and Marine Engineering (DSME) said it is willing to share the burden including accepting pay cuts. As institutional investors, including the National Pension Service which holds much of its corporate bonds, are pessimistic about the government’s bailout plan, the shipbuilder faces a bumpy road ahead.

“Management recently informed us of a 10 percent pay cut, and we do acknowledge there are reasons for such a demand by the government and creditors,” the labor union said in a statement, Friday.

“We want to make it clear that the labor union is willing to talk with management to come up with a wise solution,” it said, proposing a discussion by a four-party council comprising the labor union and management as well as the government and creditors.

The statement follows the gov- ernment’s bailout plan for the shipbuilder, which will inject an extra 2.9 trillion won ($2.6 billion).

As a prerequisite for the help, the government and the creditors including the state-run Korea Development Bank (KDB) and Export-Import Bank of Korea (Eximbank) had demanded DSME workers take on a larger share of the burden. It includes cutting 25 percent of its personnel costs as well as slashing its workforce by 1,000 jobs. The management also had suggested workers return 10 percent of their salaries while meeting with the labor union Wednesday. Executives of DSME have already been returning between 20 and 30 percent of their salaries to the company since September 2015, while office workers have been taking unpaid vacations in turn.

Meanwhile, the institutional investors which hold DSME’s corporate bonds are negative about the government plan. The National Pension, Korea Post and Teachers’ Pension hold 48.9 percent of DSME’s 1.35 trillion won corporate bonds.

For the government’s bailout plan to be executed, the institutional investors should swap 50 percent of the debt for equity, and extend the maturity of the rest by three years. Without their consent, it wouldn’t be able to inject 2.9 trillion won fresh cash to the shipyard.

However, the institutional investors point out that the government is only demanding that they share the burden, ignoring the fact that they invested in the corporate bonds due to book cooking by DSME. The institutional investors may raise a lawsuit arguing that their investment was due to a fraudulent financial statement.

The National Pension Service has already raised a 48.9 billion won lawsuit against DSME and its accounting firm Deloitte Anjin, saying their accounting fraud led to massive losses from investments in DSME shares. In an interview with local media, the National Pension Service’s chief fund manager said it may take into account raising a lawsuit for damages from corporate bond investments as well.

The National Pension Service voted for a merger between Samsung C&T and Cheil Industries back in 2015, but it is facing criticism that it succumbed to political pressure and incurred loss for subscribers who piled up money in the fund for their retirement.

While proposing four-party discussions to share the burden, the labor union also stressed that it will have no alternative if creditors forcibly execute their plans without consent of the workers.

“We know there is criticism over continuously pouring in taxpayers’ money in DSME and we see that the criticism is reasonable. However, a considerable number of workers already left the company and those who remain have already seen wages and welfare deteriorate,” it added.