Daewoo Shipbuilding gets $3.7-B lifeline but incurs quarterly loss

Creditors of Daewoo Shipbuilding & Marine Engineering said they will provide 4.2 trillion won ($3.7 billion) in a rescue package for the South Korean shipbuilder, hit by huge losses from offshore project, The Wall Street Journal report Friday.

The bailout will come in the form of a cash injection, a rights offer and a debt-equity swap, according to state-run Korea Development Bank (KDB), the largest shareholder and main creditor of Daewoo. KDB acquired about a third of the shipbuilder when the government bailed it out around the time of the Asian financial crisis in the late 1990s. The bank says it aims to privatize Daewoo at the earliest possible time.

Daewoo Shipbuilding & Marine Engineering Co., the world’s secondlargest shipbuilder, posted its second straight quarterly loss as a slump in oil prices increased costs for its offshore operations.

The third-quarter loss was 1.35 trillion won ($1.2 billion), compared with a 35.5 billion-won profit a year earlier, the company said in a regulatory filing Tuesday. That’s wider than the average 95.2 billion-won loss from eight analyst estimates compiled by Bloomberg. In the second quarter, Daewoo Shipbuilding posted a loss of 2.3 trillion won, its biggest ever.

Customers increasingly are asking global shipyards to delay delivery of ships and offshore rigs as weaker economic growth and sluggish oil prices make it difficult for them to pay for the projects. Creditors of Daewoo Shipbuilding plan to announce Thursday on how much money they will lend to the shipyard to help improve its cash flows.

“Daewoo Shipbuilding appears to be getting over its biggest challenge,” said Lee Jae Won, an analyst at Yuanta Securities Korea in Seoul. “The real task for the shipyard will be to meet its reform plans. Fourth quarter earnings could be far better than the third quarter’s.”

Daewoo Shipbuilding, Samsung Heavy Industries Co. and Hyundai Heavy Industries Co., the world’s three biggest shipyards, moved toward building floating facilities for drilling and production when the global financial crisis hit ship orders. Now they’re pulling back from that business after the drop in oil prices since last year prompted companies such as Royal Dutch Shell Plc and Petroleo Brasileiro SA to cut spending.

Daewoo Shipbuilding’s results reflected losses from a contract that was cancelled in August after an unnamed client in the Americas failed to make payment on a drill ship under construction. The company also said Tuesday two drill ships it’s building will be delivered a year later than originally agreed.

“The company reflected additional losses the creditors found in their due diligence, as well as loss from its overseas subsidiaries,” Daewoo Shipbuilding said in an e-mailed statement. “Earnings should start to improve in the fourth quarter if the creditors provide funds as planned.”