South Korea's ailing Daewoo shipyard will be able to keep alive with extra loans after the state pension fund agreed on a debt-for-equity swap despite concerns about worsening profitability and mismanagement.
In a statement issued shortly after midnight Sunday, the National Pension Service (NPS) cited the "interests" of subscribers as a top priority in accepting a fresh rescue package for Daewoo Shipbuilding & Marine Engineering Co.
The fund controls some 30 percent of the shipbuilder's total corporate bonds estimated at 1.35 trillion won (1.19 billion US dollars) and 45.5 percent of commercial papers worth about 440 billion won that comes due on Friday.
Last month, two state bans -- Korea Development Bank (KDB) and Export-Import Bank of Korea -- proposed 2.9 trillion won in new loans for the debt-stricken shipyard. Some 3.8 trillion won of debt would be rescheduled or swapped for new shares if lenders and bondholders agree.
The fresh package triggered criticism that the government was wasting taxpayers' money. Financial officials threatened to put Daewoo Shipbuilding under a debt workout program or court receivership that would result in massive layoffs and the cancellation of shipbuilding contracts.
The pension fund said its consent followed a written pledge by the two state banks to repay corporate bonds.
Experts have 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 and provincial government officials.
When Daewoo Shipbuilding was put under creditor-led restructuring with two other major shipyards last year, it presented a self-rehabilitation program to reduce its debt through asset sales and cuts in jobs and wages. The program has been largely unsuccessful.
The shipyard's 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