Daewoo Shipbuilding & Marine Engineering (DSME) will restructure to resolve financial difficulties highlighted in recent “embarrassing” news stories, according to CEO Jung Sung-Leep.
In a statement in Korean on DSME’s website he said the shipbuilder will “remove internal diseases to become a reputable organisation”.
DSME’s finances came under the spotlight on 7 July, when dockers took industrial action over a missed deadline for clearing KRW20 billion (USD17.3 million) in wage arrears. On 13 July, DSME confirmed it was selling its FLC golf course business. Two days later it was reported that DSME’s creditor banks were looking into restructuring the company’s debts.
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“News about our organisation, which has been gushing from the media since last week, has been extremely embarrassing and very impactful,” said Jung. “I sincerely and humbly apologise to everyone.”
As at the end of 2014, DSME owed KRW15.526 trillion, up from KRW13.71 trillion at the end of 2013. The company is due to repay KRW200 billion of debts on 23 July and another KRW300 billion in November.
On 21 July, DSME’s main creditor bank Korea Development Bank said it was auditing DSME to determine how much additional financing it needs.
But Jung said DSME would not be restructuring its debts.
“Although some news outlets have reported that our company would lodge an ‘autonomous agreement to restructure’ or a ‘debt workout’, we will face this big crisis on our own,” he said.
While DSME will post a second-quarter loss, the company will return to profit next year when it starts receiving payment for 37 LNG carriers won in 2014, added Jung.
“We have decided to recognise a loss for the second quarter of 2015, in line with accounting principles, in order to immediately reform the company’s debts and to quickly ease the chaos our shareholders, customers, employees, and the financial market have been feeling,” he said.
“Fortunately, we expect to realise an operating profit and internal stability from 2016, when the earnings from the construction of the LNG carriers are reflected.”
Jung blamed DSME’s financial difficulties on cancelled orders, delayed payments and, above all, cost overruns.
“The costs of some projects increased significantly during the construction process and exceeded what we budgeted for,” he said. “Our inexperience in EPC [engineering, procurement, and construction] projects resulted in errors during the design and fabrication process.”
Unpaid bills are the second cause of DSME’s plunge into the red, he said.
“There’s a considerable number of payments due to us that have been difficult to recover,” said Jung.
Customers such as Taiwanese owner TMT defaulted on orders after encountering financial difficulties, forcing the shipbuilder to sell those vessels. Losses by DSME subsidiaries also contributed to its financial shortfall, according to Jung.