By Kwanwoo Jun
SEOUL--South Korea's debt-ridden Daewoo Shipbuilding & Marine Engineering Co., the world's second biggest shipyard, was thrown a lifeline after creditors agreed to a massive debt-to-equity swap as part of a bailout plan.
The agreement came after the National Pension Service, which holds a quarter of Daewoo's outstanding bonds, decided to convert its bonds into equity as part of a fresh 2.9 trillion Korean won ($2.6 billion) rescue plan, leading the other bondholders--some of whom were previously undecided--to follow suit during two days of voting that ended Tuesday.
Creditors overwhelmingly voted for the rescue plan which obliges them to convert half of the $1.4 billion in unpaid bondholdings into equity and roll over the remaining debt until 2020, according to the ballot results.
The ailing shipyard, seen by some in Korea as too big to fail, will for now stay afloat with the debt rescheduling and fresh cash injections, and may be able to return to profitability in 2017 after two straight years of massive losses, but its survival is uncertain unless it wins high-margin ship orders even as the industry faces one of its toughest periods.
The NPS, which holds more than 40% of Daewoo's 440 billion won of debt due for repayment later this month, said Monday that "accepting the debt-rescheduling plan will be more favorable in enhancing the profits of the pension fund" than letting Daewoo go into receivership or bankruptcy.
The NPS had earlier demanded a guarantee of full debt repayment but softened its stance following weekend negotiations with Daewoo's largest shareholder, the state-run Korea Development Bank, which is leading the bailout effort.
In an 11th-hour compromise, KDB and the state-run Export-Import Bank of Korea, which together own Daewoo, promised the pension fund that they will store bond payments into a separate escrow account before maturity and pay bondholders before the state lenders seek their own claims, said officials at the Financial Services Commission, Korea's main financial regulator.
Daewoo epitomizes the trouble of the global shipbuilding industry that is still reeling from stagnating ship orders and a slowdown in China. Since the global economic slowdown in 2008, Korean shipyards have been suffering as lower-cost Chinese rivals bite into profits. Daewoo lost 2.7 trillion won in 2016, following a 3.3 trillion won loss the year earlier.
KDB and Export-Import Bank of Korea in 2015 provided a combined 4.2 trillion won in aid to the shipyard. In March they unveiled a new rescue plan, which they said would improve Daewoo's cash flows.
The latest bailout would allow Daewoo to stay afloat and avoid risking an estimated 50,000 jobs at Daewoo units and subcontractors, the loss of which could dampen a recent economic recovery.
Shipbuilding, a mainstay of the South Korea's economy, accounts for 7% of exports and 5% of employment.
Daewoo Shipbuilding & Marine Engineering President Jung Sung-leep in a statement Tuesday thanked creditors for their support for the bailout plan and promised to turn around the shipyard to be profitable this year as well as step up its self-rescue efforts. Daewoo has cut pay, laid off staff and sold noncore assets.
"It will eventually be reborn as a small but strong firm that withstands the wind," Mr. Jung said.
Write to Kwanwoo Jun at firstname.lastname@example.org
(END) Dow Jones Newswires
April 18, 2017 03:38 ET (07:38 GMT)
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