DSME Cuts 1,000 Jobs by Voluntary Retirement

File image courtesy Province of British Columbia

By MarEx 2016-10-07 18:36:01

On Friday, Daewoo Shipbuilding and Marine Engineering announced that it will be reducing its headcount by 1,000 employees through a voluntary retirement program, according to Korean media. The application period for retirement candidates will be open until October 21.

DSME is the most financially challenged of South Korea's "Big Three" shipbuilders. It has announced its intention reduce its head count by 12,000 employees by the end of the decade, to 30,000 from the present total of 42,000. As recently as 2014 its payroll stood at 55,000, including contractors. Its staff reductions initially focused on temporary employees and suppliers; late last year, it laid off 3,000 people, including 30 percent of all its administrative positions. 

DSME faces financial difficulties ahead due to a high debt burden, a historic low in ordering activity and its difficulty securing final payments for certain completed vessels, notably two drillships for Sonangol worth roughly $1 billion. 

The South Korean government has been intimately involved in DSME's restructuring efforts. South Korean President Park Geun-hye called for "bone-crushing" reform at the Big Three shipyards, emphasizing that their ailing fiscal health posed a systemic threat to the Korean economy. 

Her government recently arranged a proposed aid package for DSME totaling $3.6 billion, achieved through a combination of share capital reduction, capital injection and debt-for-equity swaps. If approved by shareholders, it would be carried out by government-owned development banks KDB and Eximbank, which are the yard’s largest creditors. The arrangement would eliminate nearly one third of DSME’s multi-billion-dollar debt burden and would help it retain its stock listing on the Korea Exchange. 

DSME is also the subject of a long-running accounting fraud investigation, which centers on allegations of misstated earnings reports and high-level corruption in years past. Two former CEOs and one former CFO have been arrested. The scandal, the high cost of the bailout and the uncertain prospects for DSME's success have made the yard's restructuring politically controversial.