Debt reprieve to help Daewoo stay afloat
Daewoo Shipbuilding & Marine Engineering, the world’s largest shipbuilder, won a reprieve from major bondholder National Pension Service (NPS) and other lenders, helping avert a payment crisis that had threatened to almost shut the company.
The NPS agreed to restructure 1.55-trillion won ($18.7bn) of bonds issued by the company after the shipbuilder, the Korea Development Bank and Export Import Bank of Korea took steps to ensure repayment of the debts, the pension service said in a statement.
Banks agreed to convert 80% of loans to Daewoo into shares and to extend the maturity on the remainder, the Financial Services Commission said.
Bondholders including Korea Federation of Small & Medium Business and Korea Post also agreed on the rescheduling plan. Two other meetings of bondholders are expected to approve, analysts said.
The reprieve means the vessel maker, unprofitable in each of the past four years, will get more time to make payments on bonds that are due in April.
“The chance soft he bond restructuring plan getting consent in other meetings is very high,” said Park Tae-woo, a credit analyst at Samsung Securities. “Readjusted terms of the restructuring, aimed at ensuring repayment of the debts, have made it more attractive for investors and banks to accept the plan than to turn it down.”
A decision on the financial restructuring of Daewoo was the biggest test for South Korea’s lenders after KDB, the shipbuilder’s majority shareholder, allowed Hanjin Shipping to collapse in 2016, when it refused to support its debt-restructuring plan. KDB was in favour of restructuring Daewoo’s loans.
“Immediate concerns have been resolved and this is good,” said Kim Ki-myung, a credit analyst at Korea Investment & Securities in Seoul.
“Daewoo Ship will live and can get back to concentrating more on its day-to-day efforts to turn itself around rather than scrambling to meet its upcoming debt obligations.”
Hanjin’s demise stranded about 100 container ships around the world and roiled the global supply chain, putting about 11,000 jobs at risk.
A Daewoo shutdown could have been much worse, jeopardising up to 50,000 jobs and $34bn of vessel orders from leading companies.
In March, KDB and the Export-Import Bank of Korea said they would provide 2.9-trillion won in additional loans and swap about 1.6-trillion won of debt for equity if other creditors and bondholders agreed to convert up to 80% of their debt and extend maturities for remaining loans by as much as five years.
RECEIVERSHIP
A failure to win final approval would mean the shipbuilder would be subject to mandatory court receivership and debt restructuring from around April 21, said Joung Young-suk, KDB’s head of corporate restructuring.
Daewoo said it had 14.4-trillion won of debt and 224.3-billion won in cash and equivalents as of December. It needs to repay the NPS about 200-billion won, or 45% of bonds maturing in April, according to two people familiar with the matter.
In total, the company owes NPS 390-billion won up to 2019, the people said, asking not to be identified as the information was not public.
Daewoo posted its fourth successive loss in 2016 as weak oil prices reduced demand for oil tankers and rigs and a surfeit of other vessels curbed demand for new ships.
The trouble at South Korea’s biggest shipbuilder adds to woes in a country hit by political and corporate turmoil that has lasted for more than a year. In March, former president Park Geunhye was arrested after a court ordered her detention barely three weeks after she was ousted for alleged corruption.