Daewoo Shipbuilding and Marine Engineering has had a hard week. On Friday, it lost a lawsuit brought by competitors Hyundai Heavy Industries and Samsung Heavy Industries over patents for reliquifying LNG boil-off gas, a technology that has given DSME a competitive edge in construction of LNG carriers. On Tuesday, its current CEO and president, Jung Sung-lip was summoned by prosecutors to answer questions about whether he may have hidden $100 million in operating losses. And on Wednesday, former CEO Ko Jae-ho received a 10-year sentence on charges of accounting fraud.
DSME had registered two patents on its re-liquifaction technology in early 2014. The yard's system takes the boil-off gas from an LNG carrier's cargo tanks, an unavoidable byproduct of shipping the chilled liquid, and compresses it once more to lower the rate of cargo loss. HHI and SHI contended that the technology was already in widespread use and did not qualify for intellectual property protections, but a review board initially ruled in DSME's favor. HHI and SHI appealed, and on Friday the Patent Court of Korea decided that DSME's patent registration should be annulled. DSME plans to appeal the decision to Korea's supreme court.
Separately, financial crimes prosecutors have been investigating DSME over charges that former executives deliberately concealed billions of dollars in losses over the period from 2012 to 2014. On Wednesday, ex-CEO Ko Jae-ho was convicted of accounting fraud and sentenced to 10 years imprisonment on charges stemming from the scandal. Ko's predecessor, Nam Sang-tae, is presently standing trial on related charges of bribery and embezzlement. And Korean media report that prosecutors are now questioning current CEO Jung Sung-lip about whether he may have concealed millions in losses in FY2015. The investigators suspect that Jung may have instructed DSME's accountants to misstate the firm's performance in order to improve its capital impairment ratio, thereby avoiding problems with its stock market listing.
The Korean shipbuilding industry has been hit hard by the downturn in the shipping market; new orders have plummeted and many buyers have tried to delay or cancel deliveries. The finance ministry predicts that 56,000 to 63,000 workers in shipbuilding alone will be affected by restructuring and job cuts by the end of this year. Thanks in part to the decline of leading industries, South Korea's nationwide unemployment rate has reached a high of 3.7 percent, up 0.2 points from 2015. In preparation for more industrial restructuring, Finance Minister Yoo Il-ho announced Wednesday that the government "will preemptively respond to changes to come in the job market," and will take policy measures to create 30,000 new positions.