Daewoo Shipbuilding & Marine Engineering’s (DSME’s) main creditor bank has asserted that it is still business as usual with the embattled shipbuilder.
In a statement issued on 23 July, Korea Development Bank (KDB) said that itself, Export-Import Bank of Korea, and other creditor banks have been continuing to engage in normal financial deals with the shipbuilder.
Media reports about DSME facing a massive operating loss for the second quarter of 2015 have cast aspersions on South Korea’s third-biggest shipbuilder’s cashflow.
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DSME booked a net loss of KRW172.4 billion (USD152 million) for the first quarter of 2015 and analysts expect DSME to be in the red for the second quarter too, with a KRW83 billion loss.
The problem was amplified when DSME failed to pay KRW20 billion in outstanding wages to yard workers on 7 July and it also admitted to selling its golf course subsidiary FLC.
KDB said, “KDB, especially, and other creditor banks, have faith in DSME’s ship construction and related core competencies. We are of the consensus that trust can be restored early if we continue to undertake financial transactions related to DSME’s operating activities.”
To that effect, KDB agreed on 21 July to provide refund guarantees for the 11 ultra-large container ships that Maersk Line ordered from DSME on 2 June. Each ship has a 19,630 teu capacity and the whole contract is worth USD1.8 billion.
The banks’ support will not end there and Korea EXIM and DSME’s other creditor banks have pledged to provide refund guarantees for all future ship orders.
However, with the possibility that DSME could sustain a massive loss for the second quarter of 2015 and thus sink into difficulties, KDB is conducting due diligence with Samjong KPMG to determine if comprehensive countermeasures are needed to respond to risks that are identified.
The main reason for a hypothetical massive loss will be thoroughly investigated and the validity of DSME’s medium- and long-term business plans as well as operations will be objectively analysed.
The due diligence checks will be applied to DSME’s subsidiaries.
KDB, Korea EXIM, and NH Bank, another of DSME’s creditors, will also jointly deploy a management team to observe the due diligence process. It is hoped that the inter-bank cooperation will enable KDB, which is also DSME’s major shareholder, to establish innovative operation and management systems.
KDB added that it will ask DSME to impose measures to raise its cashflow and allay market fears. These measures include selling non-core assets, reorganization, and cost-cutting.
As at the end of 2014, DSME had total debts of KRW15.526 trillion, up from KRW13.71 trillion at the end of 2013.
DSME is due to repay KRW200 billion of debts on 23 July and another KRW300 billion of debts in November.