Creditors of South Korea's Daewoo Shipbuilding and Marine Engineering Co. will pour 4.2 trillion won about (US$3.68 billion) into the ailing shipyard to help it get back on track, the main creditor bank said, according to South Korea's (Yonhap) News Agency.
The massive rescue package offered by state-run Korea Development Bank — which owns a controlling 31.5 per cent stake — and Export-Import Bank of Korea, includes new loans, a rights offering and debt-to-equity swaps.
“In return for this rescue package, we’ll implement rigorous restructuring at the shipbuilder, including deep job cuts and sale of nonprofitable businesses,” said KDB, Daewoo’s largest shareholder and main creditor, in a statement.
Daewoo, the world's top shipbuilder by order backlogs, has faced a major crisis this year due to the loss-making offshore facilities projects and the downturn in the overall shipbuilding sectors amid the global recession.
Profits at South Korean shipbuilder began sliding after the 2008 global economic slump damped orders, and lower-cost Chinese rivals made inroads into the market.
In the third quarter alone, Daewoo's net loss came in at 1.36 trillion won, compared to a net profit of 10 billion won a year earlier. The poor performance came after the firm suffered a disastrous 3.03 trillion loss in the second quarter, with the full-year loss feared to exceed 5 trillion won.
If DSME,, the world's second-largest shipbuilder by revenue after Hyundai Heavy Industries Co., is allowed to go bankrupt, it will have a grave impact on the creditors heavily exposed to the shipbuilder and the national economy.
It will also have ripple effects on fellow shipbuilders such as Hyundai Heavy Industries and Samsung Heavy Industries, a KDB official in charge of DSME matters said in a press conference.
Orders to build offshore facilities such as floating production storage offloading units won since 2010 were all mega-sized and sophisticated projects. As most of the deals were engineering, procurement and construction based, DSME couldn't pass increased raw materials costs onto the customers who placed the orders, DSME said.
DSME won the most orders for LNG ships among rivals last year as gas projects in countries including Russia and the U.S. gear up for production and need transportation to customers.