Daewoo Shipbuilding to issue new shares worth 600b won to improve finances

Daewoo Shipbuilding & Marine Engineering is expected to issue additional new shares worth 600 billion won ($507 million) this year, as part of efforts to improve its capital base, according to the listed shipbuilder’s main creditor Korea Development Bank on Monday.

The new share issuances will most likely be allotted to the state-run creditor bank and the company’s employees, much like the last time the shipbuilder issued new shares worth 460 billion won to KDB and employees of Daewoo Shipbuilding last December, a KDB official said.

The new share issuances worth about 1 trillion won in total through third-party allotments is part of the creditor bank’s plan to inject 4.2 trillion won liquidity into the shipbuilder, which has been suffering operation and financial losses amid the global slowdown.

“New shares will be issued as planned, albeit not immediately because we do not want (fresh) funds to become ‘idle money,’” the KDB official said, noting the shipbuilder’s recent new share issues in December.

“The rest of the 3.2 trillion won will be injected into Daewoo Shipbuilding through loans.”

Of the 3.2 trillion won debt financing, the creditor bank, which has a more than 40 percent stake in Daewoo Shipbuilding, plans to swap 1 trillion won loan into equities. This is expected to increase KDB’s shares in the company. KDB did not retain any advisors for the new issues last year.

The creditor’s plan comes after the company held a shareholders’ meeting last week and agreed to expand its new share issues following last December when it raised 460 billion won through third-party allotments to prevent capital erosion.

Analysts said that it would be much more important for Daewoo Shipbuilding to improve its cash flow from financial activities than trying to seek an operation turnaround given that it has to meet its short-term obligations next year amid a high debt ratio.

“There is a possibility for the company to see a turnaround this year, but there is low chance that it can (immediately) improve its finances through cash flow from operations,” said Kim Hyun, an analyst at Shinhan Investment.

“Without new shares and additional liquidity, the company will unlikely see its shares rebound.”

Last year, the shipbuilder suffered an operation loss of 5.5 trillion won, with net loss of 5.1 trillion won. Its consolidated debt ratio stands at around 4,300 percent. The new share issues are expected to decrease its debt ratio to less than 2,000 percent, analysts said.

By Park Hyong-ki (hkp@heraldcorp.com)