Daewoo's fate in hands of pension fund

A Daewoo Shipbuilding & Marine Engineering shipyard in Geoje, South Korea. Daewoo said it had 14.4 trillion won (S$17.6 billion) of debt and 224.3 billion won in cash and equivalents as of December.
A Daewoo Shipbuilding & Marine Engineering shipyard in Geoje, South Korea. Daewoo said it had 14.4 trillion won (S$17.6 billion) of debt and 224.3 billion won in cash and equivalents as of December.PHOTO: REUTERS

SEOUL • South Korea's National Pension Service (NPS) has a decision to make: Help the world's biggest shipbuilder survive - or let it die.

Creditors of Daewoo Shipbuilding & Marine Engineering are due to meet next week to decide whether to convert some of the 1.55 trillion won (S$1.96 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 HI Investment & Securities analyst Choi Gwang Shik.

It is the biggest test for South Korea's lenders after Korea Development Bank (KDB), the shipbuilder's majority shareholder, allowed Hanjin Shipping 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 (S$48 billion) of vessel orders.

"That's why I think the restructuring plan will go through," said Mr 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.

Daewoo plans to meet bond holders on April 17 and 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 April 21, said Mr Joung Young Suk, who is KDB's head of corporate restructuring.

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 NPS about 200 billion won, or 45 per cent of bonds maturing in April, according to two people familiar with the matter. In total, it owes NPS 390 billion won through 2019, the people said, asking not to be identified. Daewoo's debt-to-equity ratio was 2,732 per cent at the end of last year, KDB said last month.

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A version of this article appeared in the print edition of The Straits Times on April 12, 2017, with the headline 'Daewoo's fate in hands of pension fund'. Print Edition | Subscribe