On Wednesday, struggling Korean shipbuilder Daewoo Shipbuilding and Marine Engineering (DSME) announced rare good news: it has secured $1.5 billion in sales over the year to date; it foresees a profit in its first-quarter numbers; and its employees will return a significant fraction of their prior-year wages.
In a statement, the yard said that it has reached an agreement with all but a handful of its 10,000 employees to take back 10 to 15 percent of their previous year's pay. 98 percent of DSME’s workers – including all of its top executives – have agreed to the unprecedented measure.
In an interview with Yonhap, CEO Jung Sung-leep expressed optimism for the yard's future, and he said that its biggest creditors "don't need to worry" about whether DSME will be able to repay its debts in the future. He cautioned against a prepackaged receivership – an increasingly likely option – because it could lead to order cancellations. DSME still holds the world’s largest order backlog, and Jung said that "our clients would be tempted to cancel deals with us, if we are placed under a prepackaged plan.”
DSME's bondholders will meet on Monday and Tuesday to discuss a government proposal for a $2.6 billion bailout, which would require the yard's creditors to swap some of its debt for equity and reschedule much of the rest. The final decision on whether the restructuring will proceed rests with Korea's National Pension Service, which is DSME's largest bondholder. If it does not agree with the plan, the yard will likely enter receivership as early as next Friday, when about $400 million in debt is set to mature.
NPS would have to approve of the restructuring measures for all five tranches of DSME's bonds, and other institutional bondholders are said to be following its decisionmaking closely. The pension fund has voiced skepticism of the bailout plan, and earlier this week it called for Korea Development Bank to shoulder a greater share of the burden – a proposal that KDB firmly rejected.
On Thursday, a delegation of DSME's contractors and suppliers petitioned creditors to keep the yard out of bankruptcy court. If DSME enters receivership, "it will increase the management difficulties of the suppliers due to the delay in payment [for] the equipment and labor expenses that were already provided," the group said in a statement. In addition, the suppliers warned that up to 50,000 employees and their families could lose their livelihoods, and they pointed to the fate of the companies that worked with STX Offshore and Shipbuilding: over 100 of STX's partner firms went under when the yard entered bankruptcy, with significant consequences for the local economy in Gyeongnam and Busan.