On Tuesday, Daewoo Shipbuilding and Marine Engineering announced its fourth consecutive annual loss, with a net deficit of $2.4 billion and operating losses of $1.4 billion. Industry sources said today that the South Korean government is intending to give the struggling yard another giant bailout package, despite earlier promises from state lenders that they would not provide DSME with any further public funds.
Consulting accountants KPMG have determined that DSME will have a liquidity shortfall of about $2.6 billion by the end of this year, and senior officials told Pulse News that the latest bailout package would consist of new loans worth roughly that amount – $2.7 billion – plus a rollover of $800 million in existing debt. Korea's Financial Services Commission intends to ask private banks to participate, including KB Kookmin and Shinhan Bank, the sources said.
“We would have to ask both public and private lenders to help out for national interests as the state would have to cover as much as 57 trillion won [$50 billion] for failed deliveries if DSME goes bankrupt,” an official told Pulse. The Korean government has already provided DSME with two rounds of financial assistance, including a controversial $3.5 million bailout in 2015 and a $2.4 billion debt-for-equity swap late last year.
If state officials cannot persuade DSME's lenders to join in the debt workout and reschedule bonds that are due to mature beginning in April, the shipbuilder could be headed for a bankruptcy filing – and its lenders could be headed for a writedown of up to 30 percent of the yard's debt.
In a regulatory filing, DSME said that its poor performance 2016 was due in part to loss provisions for its offshore business. It has suffered badly from a downturn in ordering activity and from contraction in the oil and gas industry, which has made it difficult for DSME to secure the delivery payments for two high-spec drillships valued at $430 million apiece.