South Korea's state-controlled banks proposed a fresh rescue package worth 5.99 billion US dollars Thursday to keep an ailing shipyard afloat despite criticism that they are wasting taxpayers' money.
The 6.7 trillion won package mapped out by the Korea Development Bank (KDB) and Export-Import Bank of Korea included 2.9 trillion won in new loans to Daewoo Shipbuilding & Marine Engineering. Some 3.8 trillion won of debt will be rescheduled or swapped for new shares if lenders and bondholders agree.
Financial officials have warned that if creditors and bondholders disagree, Daewoo Shipbuilding will be placed under a debt workout program and court receivership. They believe there is no other option to rescue the debt-stricken shipyard, citing an aggravated liquidity crisis caused by dwindling orders and a prolonged business slump.
"I'm ready to take responsibility but overcoming the current crisis is the best way to go," KDB chairman Lee Dong-geol told reporters, apologizing for reversing his earlier pledge to stop wasting taxpayers' money. His warning was based on a study that the shutdown of Daewoo Shipbuilding would cost about 59 trillion won.
Creditors have already spent a huge amount of liquidity on rescuing Daewoo Shipbuilding at the expense of their red balance sheet, but the shipyard has failed to thwart a liquidity crisis. Former executives have been arrested for mismanagement, window dressing and accounting fraud to secure a continued flow of bank loans.
Samjong KPMG, an accounting firm, found in a recent due diligence that the ailing shipyard is in urgent need of around 3.5 trillion won to stay afloat as bonds worth of some 940 billion won mature this year and 550 billion next year.
Daewoo Shipbuilding, which is under creditor-led restructuring with two other major shipyards, has already sucked more than 11 trillion won in special loans since 2000.
Initially, experts suggested the shipyard should separate its defense section or merge with competitors to rehabilitate South Korea's embattled shipbuilding industry. However, policymakers refused to do so, fearing a backlash from labor unions, politicians, provincial government officials and voters.
Especially, they are reluctant to acknowledge policy failures at a time when South Korea is going to select a new president in an election in early May following the departure of ex-president Park Geun-hye for her role in a corruption scandal.
Last year, Daewoo shipyard presented a self-rehabilitation program worth 5.3 trillion won to reduce its debt through asset sales and cuts in jobs and wages, based on the assumption that things would get better. So far, the shipyard has raised just some 1.6 trillion won.
The shipyard's corporate earnings released this month showed that its operating loss was down to 1.61 trillion won last year from 2.94 trillion won in 2015 while net loss narrowed to 2.71 trillion won from 3.3 trillion won a year ago with sales falling 15 percent on-year to 12.74 trillion won.
Lim Chang-won = email@example.com