Daewoo Shipbuilding to get $2.6b

Bailout conditional on creditors agreeing to debt-equity swap

South Korean state banks are preparing a fresh $2.6 billion (Dh9.5 billion) bailout for the floundering Daewoo Shipbuilding & Marine Engineering Co. Ltd, which has built up huge losses from offshore projects and risks missing debt repayments.

Daewoo, Hyundai Heavy Industries and Samsung Heavy Industries are South Korea’s top shipbuilders — a massive economic force and a source of national pride. But they slipped into the red in 2015 amid a commodities downturn and bleak trade volumes, prompting and asset sales.

Of the three, Daewoo’s situation is the most difficult.

Without the infusion of funds, Daewoo is not expected to be able to redeem 940 billion won ($840.49 million) in corporate bonds maturing this year — starting with 440 billion won due in April, the country’s financial regulator, the Financial Services Commission (FSC), said yesterday.

Bondholders and other creditors, cost cuts however, will have to agree to painful debt-for-equity swaps for the 2.9 trillion won bailout to go through. In case of disagreement, Daewoo could enter a form of court receivership under an alternate plan.

“A liquidity crunch is expected in April, and without additional measures Daewoo Shipbuilding will not be able to meet its obligations and bankruptcy cannot be avoided,” the FSC said.

Already bailed out in the aftermath of the Asian financial crisis of the late 1990s and supported again in 2015, Daewoo’s financials have deteriorated rapidly since then due to delays and trouble building complex offshore facilities. It reported a record net loss of 3.3 trillion won in 2015.