Daewoo Shipbuilding & Marine Engineering is resorting to both self-help and external assistance.
2017-03-16 09:00
DSME, facing financial difficulties, is accelerating the sale of more non-core assets, hoping to improve its financial situation by selling assets amid a decline in new ship orders. Simultaneously, DSME's creditors are considering providing more financial assistance.
Self-Help: DSME Accelerates Sale of Non-Core Assets
Sources say DSME recently signed a memorandum of understanding to sell a building in central Seoul for approximately 35 billion won (about US\$30 million). Concurrently, DSME is also putting a subsidiary up for sale, priced at 18 billion won. Both asset sales are expected to be completed in April.
The global shipbuilding market downturn has put immense pressure on DSME, leading to a continuous deterioration of its financial condition.
Although DSME's 2016 annual order target was 12 billion USD, it only received 1.55 billion USD in new ship orders. Furthermore, due to the worsening financial condition of ship owners, two drillships being built for Sonangol remain undelivered, and the remaining payment of 990 million USD is overdue.
To overcome the current difficulties, DSME has been accelerating the sale of non-core assets. To date, through asset sales and layoffs, DSME has secured 1.6 trillion won in funds.
In addition to asset sales, DSME will undertake a 2.5 trillion won self-rescue plan in 2017. This is higher than last year's 1.6 trillion won self-rescue plan and includes laying off 2,000 employees. By the end of 2017, the shipyard plans to reduce its workforce by 8,500.
The plan also includes DSME disposing of non-core assets such as its IT business, construction, and floating dry docks, totaling 500 billion won.
Furthermore, the shipyard decided to reduce its 2017 annual order target to 5.5 billion USD, anticipating a decrease in 2016 backlog.
External Help: Creditors Consider Another Rescue Plan for DSME
Recent reports indicate that DSME's creditors are considering providing further financial assistance. Creditors are considering another rescue plan of 3 trillion won (US\$2.6 billion) for the cash-strapped DSME.
The state-run Korea Development Bank (KDB), a creditor, stated it will provide financial support to DSME due to the decrease in new ship orders.
Led by KDB, creditors announced a 4.2 trillion won aid package for DSME in October 2015. At the time, creditors expected DSME to secure 12 billion USD in new ship orders in 2016 and successfully deliver newly built ships. However, DSME's performance last year proved worse than the creditors' predictions.
At the end of 2016, DSME's creditors intended to launch a 2.8 trillion won debt-to-equity swap and bond sale plan to support the struggling shipyard.
According to the plan, KDB stated it would convert 1.8 trillion won of debt into equity, having previously converted 400 billion won of debt into DSME equity.
In January 2017, KDB's equity stake in DSME rose from 49.74% to 79.04%.
The second largest creditor, the Export-Import Bank of Korea, will purchase 1 trillion won worth of bonds sold by DSME.
Currently, a major issue for DSME is how to repay 440 billion won in debt maturing in April. This year, DSME needs to refinance or repay a total of 940 billion won in debt, with another 550 billion won maturing next year.
It is understood that Korean financial institutions will announce measures regarding DSME this month. Many industry insiders believe that considering the potential far-reaching impact of DSME's bankruptcy on the Korean economy, the Korean government will likely choose to continue assisting DSME.
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