Time running out for world’s top ship maker as creditors argue
SOUTH Korea’s National Pension Service has a decision to make – help the world’s biggest ship maker survive, or let it die.
Creditors to Daewoo Shipbuilding & Marine Engineering Co. are due to meet next week to decide whether to convert some of the 1.55 trillion won ( RM6.3 billion) of bonds into equity to help the unprofitable company. Tipping the scale will be the decision of NPS, the biggest holder of debt that matures this month.
“If the National Pension Service doesn’t agree to the debt restructuring plan, then Daewoo Shipbuilding will no longer exist,” said Choi Gwang- shik, an analyst at HI Investment & Securities Co. in Seoul.
It’s the biggest test for South Korea’s lenders after Korea Development Bank, the shipbuilder’s majority shareholder, allowed Hanjin Shipping Co. to collapse last year after refusing to support its debt restructuring plan.
Hanjin’s demise stranded about a hundred container ships around the world and roiled the global supply chain, putting some 11,000 jobs at risk. A Daewoo shutdown could be much worse, jeopardising up to 50,000 jobs and US$ 34 billion of vessel orders from companies including A.P. Moller-Maersk A/ S and Statoil ASA.
“That’s why I think the restructuring plan will go through,” said Choi. “Chances of a recovery would be much greater if the plan is approved.”
The meetings may come down to a face- off between KDB, which owns 79 per cent of the shipbuilder, and the state pension fund, which is already embroiled in its own scandal after the arrest of its chairman.
KDB and the Export-Import Bank of Korea said last month 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 agree to convert up to 80 per cent of their debt and extend maturities for remaining loans by as much as five years.
The NPS told KDB that it’s willing to provide a three-month extension for the repayment on bonds that mature on Apr 21, the pension fund said in an emailed statement last Tuesday. That would give NPS and other investors who bought the securities more time to review Daewoo’s debt-restructuring plan, it said. Daewoo plans to meet bondholders on Apr 17 and Apr 18, according to regulatory filings. If they fail to agree on a solution, the shipbuilder will be subject to mandatory court receivership and debt restructuring from around Apr 21, said Joung Young- suk, KDB’s head of corporate restructuring.
“As the normalisation of Daewoo Shipbuilding should not be delayed any longer and cannot be delayed, KDB will put all of its efforts to get an approval from
If the National Pension Service doesn’t agree to the debt restructuring plan, then Daewoo Shipbuilding will no longer exist. Choi Gwang-shik, an analyst at HI Investment & Securities Co. in Seoul
the creditors’ meeting as well as persuading investors,” the lender said in a statement Tuesday. “Considering the financial status of Daewoo Shipbuilding, it may face a virtual bankruptcy crisis between late April and early May if there’s no additional financial support. ”
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 per cent of bonds maturing in April, according to two people familiar with the matter. In total, the company owes NPS 390 billion won through 2019, the people said asking not to be identified as the information isn’t public. Daewoo’s debt-toequity ratio was 2,732 per cent at the end of last year, KDB said in March.
The NPS plans on taking a cautious approach to ensure the longer-term interest of the fund, said an NPS spokesman, who wouldn’t confirm the debt figure the fund holds. Daewoo will do its best to persuade the bondholders to accept the restructuring plan, a company spokesman said by phone. Daewoo posted its fourth consecutive 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 shipyard could face a cash shortage over the next two years of up to 5.1 trillion won in the current environment, KDB and Export-Import Bank said in a statement last month.
“Creditors’ losses are inevitable,” said Park Jinyoung, a credit analyst at HMC Investment Securities Co. in Seoul. “If Daewoo Shipbuilding cannot be revived, then asset sales will start to repay the loans.”
The trouble at South Korea’s biggest shipbuilder is the latest blowup in the beleaguered country, which has been embroiled in a political and corporate meltdown for more than a year. — WP-Bloomberg