DSME: Difficulty Securing Payment for Two Drillships

Signing ceremony for a second Sonangol order (image courtesy DSME)

By MarEx 2016-06-22 21:44:40

On Tuesday, Lee Dong-geol, the chairman of Korea Development Bank, told a meeting of entrepreneurs that he was not yet certain whether KDB would be extending more aid to troubled Daewoo Shipbuilding and Marine Engineering (DSME), and would proceed cautiously. 

KDB is DSME's largest creditor and faces the largest exposure to any potential default. South Korea's government has recently moved to recapitalize the bank in anticipation of losses and the need for intervention in the nation's struggling shipping and shipbuilding sectors. 

KDB has come under criticism from government investigators looking into a long-running accounting scandal at DSME for failing to detect or counter improper financial practices at the shipbuilder, which misstated its earnings by several billion dollars in 2013 and 2014. Mr. Lee addressed the past problems in his remarks Tuesday and appeared to acknowledge that KDB did not do all that it could have at the time. "There were some things that we should have done better, and I regret it now,” he said, as reported by Korea Joongang Daily. Lee took up the chairmanship at KDB in February, after the period in question. 

Separately, a report in South Korean media shed additional light on the specific problems facing DSME. The firm has secured more recent orders (by value) than its compatriots – notably up to $1 billion worth of tankers – and it still has the world's largest orderbook. However, it will likely face a liquidity crunch as soon as September, when $350 million in bonds will mature, reports Business Korea. The paper quoted DSME President Chung Sung-rip saying that “when the company fails to extend the maturity of large-scale corporate bonds in September, it will go into court receivership." Among other challenges for meeting that deadline, DSME said Tuesday that it does not expect to be able to secure final "heavy-tail" payments for the delivery of two drillships, Sonangol Libongos and Sonangol Quenguela, totaling to about $850 million. Daewoo cited the finances of the shipowner; the yard secured export credit insurance for the two vessels in December but information on whether it would apply was not immediately available.

Sonangol is Angola's state oil company, and with falling oil prices it faces challenges: the firm has halted its remittances to the state, taking away 60 percent of government revenue. In response, Angolan President Jose Eduardo dos Santos has appointed his daughter Isabel to take over as head of the firm. There is a silver lining, however: despite financial turmoil, Sonangol has secured a number of recent large-scale finds in its offshore Kwanza pre-salt basin – including a claimed 2.8 trillion cubic foot natural gas reservoir.