South Korea to inject $2.6 bln into ailing shipyard Daewoo

Financial Supervisory Commission said on Thursday that the decision to provide another capital injection to Daewoo comes as its debt begins to mature next month.

Some 50,000 jobs at Daewoo and its contractors are at stake.

Daewoo's two largest state creditors, Korea Development Bank and the Export-Import Bank of Korea, will accept a 100% debt-to-equity swap of 1.6 trillion won in unsecured loans.

Daewoo's latest woes come at a delicate time for South Korean politics. South Korea is holding a snap election in May to select a president after the Constitutional Court upheld the impeachment of Park Geun-hye earlier this month, citing the influence-peddling scandal involving her secretive adviser.

Their financial assistance in 2015 was based on a rosy outlook that the shipbuilder would clinch up to $12 billion worth of orders past year, and the delivery of newly built ships would go smoothly. The two state-run banks already provided a combined 4.2 trillion won in aid to DSME in 2015.

Daewoo was in "critical" financial condition and would face insolvency in April, when it has to repay large corporate bonds, unless "strong and comprehensive measures" were taken, he told journalists. Daewoo failed to meet its $11.5 billion target for new ship orders in 2016, booking only $1.5 billion.

But a prolonged slump in oil prices and the global economic slowdown sapped demand for tankers and container ships, while overcapacity, regional rivalry and competition from cheaper Chinese shipbuilders squeezed profit margins.

Daewoo has the world's largest volume of existing orders among shipyards, with 6.16 million compensated gross tonnage (CGT) still to be delivered, versus No. 2 Samsung Heavy's 3.6 million CGT and No. 3 Hyundai Heavy's 3.39 million CGT, Clarksons Research data shows. Arirang reports that the shipyard will get new loans of 2.9 trillion won, or about 2.6 billion dollars if lenders and bondholders agree to exchange this for new shares in the company.

The company has been cited as an example of moral hazard at a state-owned company after its former CEO and former chief financial officer were convicted of embezzlement and breach of trust. If you would like to discuss another topic, look for a relevant article.

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  • Zachary Reyes