Dark clouds are on the government’s plans to salvage Daewoo Shipbuilding & Marine Engineering (DSME), as Clarksons Research, an authoritative market consultancy, revised its 2018 outlook on ship orders more skeptically. Its previous positive outlook offered strong grounds for the bailout scheme of providing new loans and rescheduling debts for the cash-strapped shipbuilder.
Also, the state-run Korea Development Bank (KDB), which leads the debt rescheduling negotiations, and the National Pension Service (NPS), which is one of DSME’s largest corporate bondholders, failed to iron out their differences, raising the likelihood of DSME being placed under court receivership.
According to industry sources on Tuesday, Clarksons Research recently came up with a new report where it reduced the expected number of ship orders for 2018 by 13 percent compared to its previous report released last September.
Worse, it turns particularly pessimistic for container ships and LPG and LNG tankers where Korean shipbuilders have an edge.
Citing an optimistic September 2016 report, the government decided last month to provide new loans worth 2.9 trillion won ($2.59 billion) to DSME on condition that creditors and bondholders agree to a 2.9 trillion won debt-to-equity swap and a 900 billion won debt rescheduling.
A government official said, “Even after the downward revision of 2018 orders, Clarksons Research expects the shipbuilding industry will rebound anyway.”
But criticisms have erupted that the Seoul administration depends too much on a report that can be revised every six months.
The government had already experienced a debacle after relying on a different Clarksons reports. While making a separate 4.2 trillion won support package for DSME in October 2015, the Financial Services Commission (FSC) cited Clarksons’ estimation that DSME would win new orders worth $11.5 billion in 2016.
However, DSME ended up netting merely $1.54 billion last year, over which FSC Chairman Yim Jong-yong said, “We committed a mistake by not being conservative enough.”
Before infusing fresh taxpayer money in DSME, the government requested corporate bondholders and commercial paper holders to agree on a 50 percent debt-equity swap and 50 percent debt rescheduling on their receivables worth 1.5 trillion won.
The NPS, which holds DSME corporate bonds worth 390 billion won, has been calling for KDB to shoulder more of the burden. However, KDB on Monday flatly refused such a request, saying “there is no room for us to accept such calls.”
The NPS on Tuesday said it cannot accept the bailout plan.
“Though it may take time, DSME and the main shareholders of KDB and the Export-Import Bank of Korea should make a decision which can be accepted by involved parties.”
With the conflicts deepening, a two-day DSME corporate bondholders’ meeting will begin on April 17. If bondholders, including the NPS, fail to agree on the government’s plan, DSME will be placed under a pre-packaged plan, a mixture of court receivership and a debt workout plan.