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DSME Fraud Probe Widens to Include Current Executives

DSME
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By MarEx 2016-08-09 18:56:00

On Tuesday, South Korean media reported that prosecutors looking into an accounting scandal at Daewoo Shipbuilding & Marine Engineering are expanding the scope of their investigation to include the firm's current executives. 

Late last week, prosecutors summoned Kim Yul-jung, DSME's CFO since March 2015, regarding allegations that $110 million in operating losses were purposely hidden under his watch.

Yul-Jung is the former head of finance for DSME's largest creditor, Korea Development Bank. He was appointed as the shipyard’s CFO during the tenure of previous DSME chief executive Ko Jae-ho, who was recently indicted on charges of fraud.

The investigators suspect that the alleged fraud in early 2015 was committed in order to keep the firm's access to credit open and to prevent the imposition of administrative measures related to its listing on the Korea Stock Exchange.

The probe may broaden to include current CEO Chung Sung-lip, who took charge of DSME at the time that prosecutors say the fraud was committed. If investigators do decide to call Chung in for questioning, it would be a reversal, as last year he was a whistleblower: Chung reported the fraud committed under the previous two CEOs of DSME. 

Accounting firm Samjong KPMG has already predicted that the coming years will be challenging for the yard, with a liquidity shortage of $2 billion this year, $3.3 billion next year and $4 billion in 2018. Analysts suggest that the expansion of the investigation into the current leadership could make clients and creditors more reluctant to do business with DSME.

DSME reported a small piece of good news on Monday when it announced that it had convinced clients to release $470 million of vessel installment payments ahead of schedule, strengthening its cash flow. The yard owes a debt payment of over $300 million next month.