Daewoo Shipbuilding to get second lifeline from creditors

Bloomberg

Daewoo Shipbuilding & Marine Engineering Co. could receive another lifeline from lenders as the world’s biggest shipbuilder needs cash to complete work on pending orders to stay afloat.
Korea Development Bank and Export-Import Bank of Korea will provide 2.9 trillion won ($2.6 billion) in additional loans and swap about 1.6 trillion won of debt to equity, Korea Development Bank said in a statement on Thursday. This is conditional upon other creditors and bondholders agreeing to convert as much as 80 percent of their debt to equity and extend maturities by as much as five years, it said.
Daewoo Shipbuilding posted its fourth consecutive loss in 2016 as weak oil prices and excess capacity of vessels dented demand for ships and offshore projects. KDB and Export-Import Bank of Korea in 2015 had pledged 4.2 trillion won in new loans and debt-for-equity swap to help the shipbuilder, which is carrying out restructuring that includes job cuts by next year and reduction in production capacity. The firm faces about 940 billion won of bond repayments this year.
“If there is no additional support, Daewoo Shipbuilding’s liquidity crunch could become a reality and it could face default,” KDB said in the statement. “If this happens, the loss to the country’s economy could be vast as the whole shipbuilding industry could collapse and financial institutions could face further losses.” Daewoo Shipbuilding could face a cash shortage over the next two years of as much as 5.1 trillion won in the current environment, the statement showed.
In exchange for the support, Daewoo Shipbuilding needs to speed up efforts to sell non-core units by 2018 and other assets, according to the statement. It will also need to save 25 percent of staff costs this year by cutting pay for all 10,443 employees and through leave without pay. The company will also need to reduce its workforce to below 9,000 by the first half of next year.
Daewoo Shipbuilding could be put under a court-led restructuring plan should the creditors and bondholders fail to agree on debt-for-equity swap and maturity extension, KDB said. The shipbuilder has a combined 1.55 trillion won of bonds and commercial papers coming due by 2019.
Through the measures, the shipbuilder’s debt-to-equity ratio could be drastically cut to 248 percent at the end of 2021, from 2,732 percent at the end of 2016, KDB said. Its operating profit margin over sales is projected to reach about 1.5 percent in four years, compared with a loss of 12.6 percent last year.
Sales could reach about 7 trillion won in 2021, compared with 12.7 trillion won last year, KDB said. The company will focus on building vessels and defense-related products. KDB and other government-related agencies will seek to sell their stake in Daewoo Shipbuilding after 2018.