SEOUL • South Korean state banks are preparing a fresh US$2.6 billion (S$3.64 billion) bailout for floundering Daewoo Shipbuilding & Marine Engineering, which has built up huge losses from offshore projects and risks missing debt repayments.
Without the infusion of funds, Daewoo is not expected to be able to redeem 940 billion won (S$1.17 billion) in corporate bonds maturing this year - starting with 440 billion won due in April, the country's financial regulator, the Financial Services Commission (FSC), said yesterday.
Bond holders and other creditors, however, will have to agree to painful debt-for-equity swaps for the 2.9 trillion won bailout to go through. In case of disagreement, Daewoo could enter a form of court receivership under an alternate plan.
"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.
Daewoo, together with Hyundai Heavy Industries and Samsung Heavy Industries, are South Korea's top shipbuilders. But they slipped into the red in 2015 amid a commodities downturn and bleak trade volumes, forcing all three to slash costs and sell assets. Of the three, Daewoo's situation is the most difficult.
Already bailed out in the aftermath of the Asian financial crisis of the late 1990s, Daewoo's financials have deteriorated rapidly since 2015 due to delays and trouble building complex offshore facilities.
It reported a record net loss of 3.3 trillion won in 2015.
In the event of a bankruptcy, about 50,000 people would be expected to lose their jobs and about 1,300 subcontractors could also go under.The South Korean economy could take a 48.4 trillion won hit if Daewoo goes bankrupt this year, the FSC said.
The FSC's plan to keep Daewoo afloat requires corporate bondholders to agree to a 50 per cent debt-to-equity swap and a three-year repayment grace period on the remaining.
Daewoo's two largest state creditors, Korea Development Bank (KDB) and the Export-Import Bank of Korea, will accept a 100 per cent debt-to-equity swap of 1.6 trillion won in unsecured loans. This is separate from the 2.9 trillion won the two will inject into Daewoo if all stakeholders agree to the plan.
A Daewoo creditors' meeting will be called around April 14, KDB said.
After Daewoo overcomes this liquidity crunch, it will be put up for sale, said KDB chairman Lee Dong Geol. "Going forward, we will work with Daewoo so it can focus on its strengths in fuel-efficient ships, liquefied natural gas vessels and naval vessels," Mr Lee said.