South Korea's Daewoo Shipbuilding to get new, conditional, 2.9t won bailout

[SEOUL] State banks will extend South Korea's foundering Daewoo Shipbuilding & Marine Engineering Co Ltd a new 2.9 trillion won (S$3.64 billion) bailout, but only if bondholders and other creditors agree to swingeing debt-equity swaps, the country's financial regulator said on Thursday.

The Financial Services Commission (FSC) said Daewoo Shipbuilding was not expected to be able to redeem 940 billion won in corporate bonds maturing this year - starting with 440 billion won due in April - without a new infusion of funds.

Daewoo Shipbuilding's financials have deteriorated rapidly since 2015 because of losses from delays and difficulties in building complex offshore facilities. It reported a record net loss of 3.3 trillion won in 2015.

Additional delays in the delivery of a drillship due to low oil prices bogging down negotiations, and the shipbuilder winning far fewer orders in 2016 than expected, have reduced liquidity to critical levels, the FSC said.

"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 in a statement.

In the event of a bankruptcy about 50,000 people would be expected to lose their jobs and about 1,300 sub-contractors could also go under.

Additionally, Daewoo's creditor banks would be liable for massive refund guarantees of pre-paid construction fees and would have to set aside bad-loan provisions of up to 14 trillion won, the FSC added.

The regulator estimated that the South Korean economy would take a 48.4 trillion won hit if Daewoo Shipbuilding were to go bankrupt this year.

The FSC's plan requires corporate bondholders, which hold about 1.5 trillion won of Daewoo debt, to agree to a 50 per cent debt-to-equity swap and a three-year repayment grace period on the remaining 50 per cent.

South Korean non-state-owned creditor banks, which hold about 700 billion in unsecured loans, must agree to a 80 per cent debt-to-equity swap and a five-year grace period on the remaining 20 per cent.

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

This is separate from the 2.9 trillion won the two banks will inject into Daewoo if all stakeholders agree to the plan.

Trading in Daewoo shares is currently halted.

South Korea's top three shipbuilders, including Daewoo Shipbuilding, submitted plans last year to sell up to 4.8 trillion won in combined assets and find 3.6 trillion won through cost cuts as part of government-led efforts to restructure the industry.

REUTERS