The South Korean financial watchdog has asked state-run policy lender Korea Development Bank (KDB) to sell its shares in companies that are not part of its core business.
Embattled shipbuilder Daewoo Shipbuilding & Marine Engineering is top on the list of affected companies, which became KDB subsidiaries through debt-for-equity swaps after falling into financial trouble.
Financial Services Commission chairman Yim Jong-yong told reporters, “KDB has been supporting big companies that encountered difficulties due to bad debts. Now that these companies have successfully restructured, KDB has achieved its investment purpose.”
KDB became DSME’s major shareholder after it fell into difficulties in the early 2000s following the Asian financial crisis.
DSME has started restructuring and selling non-core businesses to boost liquidity. A revelation that it concealed KRW3 trillion (USD2.5 billion) in losses from delayed offshore plant projects resulted in a KRW2.4 trillion loss for 2Q15 and would worsen DSME’s debts, which already exceed KRW15 trillion.
In light of the revelation, KDB has come under fire for its poor management skills.
In all, there are 118 companies that Yim described as being “non-financial businesses” of KDB.
Twenty of these, including DSME, are a priority for KDB’s divestment.
Yim suggested that KDB instead support small and medium enterprises in their growth.
He added, however, that the extent to which KDB should offload its equity in those companies has yet to be decided.
The highly publicised financial woes of South Korea’s family-run conglomerates, or chaebol, has prompted the financial watchdog to switch tactics by asking banks to support SMEs with growth potential instead.