Korea Development Bank (KDB) is doing due diligence into Daewoo Shipbuilding & Marine Engineering (DSME) to determine if South Korea’s third-biggest shipbuilder should receive funds to avert a liquidity crunch.
South Korean media reports claim the country’s Financial Services Commission is pressing KDB, DSME’s main creditor, to provide KRW1 trillion (USD863 million) to increase DSME’s capital and another KRW1 trillion as a new loan.
When contacted, a KDB official said, “We are auditing the company and still trying to determine how much money is needed to prevent a liquidity crunch at DSME.”
The development comes just as DSME is due to repay KRW200 billion of debts on 23 July, and another KRW300 billion in November.
On 16 July, DSME said that its creditor banks were discussing restructuring its debt.
Having won 37 LNG carrier orders last year, DSME is now finding itself in hard times again – it needed a government bailout during the Asian financial crisis in 1998.
Low-priced orders secured from 2011-13 have combined with heavy-tail payment to pressure DSME’s cash flow.
DSME is expected to post its second consecutive quarterly loss of at least KRW1 trillion for the second quarter of 2015.
As at the end of 2014, DSME had total debts of KRW15.526 trillion (USD13.6 billion), up from KRW13.71 trillion at the end of 2013.
Operating cash flows, a leading indicator in the order-driven sector, deteriorated to a KRW787.9 billion deficit and net debt increased by KRW500 billion, eroding the balance sheet compared with 2014.
DSME also paid out retroactive overtime wages of KRW45 billion in the first quarter of 2015.
DSME’s financial woes were brought into the spotlight when several of its yard workers went on strike from 7-8 July, after the shipbuilder failed to meet a 7 July deadline for paying out KRW20 billion in outstanding wages. DSME told IHS Maritime then that its management has been having difficulties and it is in talks with the workers’ union to resolve the situation.
The shipbuilder’s precarious financial situation and the labour union’s discontent made it decide not to acquire a majority stake in STX France shipyard.