We are dumbfounded to hear that trillions of won in taxpayers’ money has to be poured into Daewoo Shipbuilding and Marine Engineering again as the company reels under mounting debts and losses.
The company reportedly suffered operating losses of more than 3 trillion won ($2.66 billion) in the first half of the year alone. By year-end, its losses are expected to reach 5.3 trillion won.
We are left speechless by the totally irresponsible behavior of the troubled company’s management and workers. Despite the huge losses, Daewoo’s management agreed with labor representatives last month to pay 9 million won in incentives to every worker.
The company’s former and incumbent management have kept its losses under wraps and hired dozens of former government officials, retired military generals and officials from creditor banks as nominal advisers, paying them billions of won in total.
Then the company has brazenly asked its creditor banks to inject trillions of won of taxpayers’ money into it.
The state-run Korea Development Bank and other creditors would have provided more than 4 trillion won in loans and equity investment to the shipbuilder, if the government had not weighed in.
Last Thursday, the government put the banks’ rescue plan on hold, demanding that the shipbuilder come up with a package of measures to return to financial health, agreed to by its labor union.
The government said the self-help plan should include a ban on labor strikes, a prolonged freeze on wages, and sales of assets.
The company’s union refused to endorse the plan, apparently believing the firm was “too big to fail.” The firm’s management does not appear serious about making reform efforts either.
The government should make it clear that not one penny of taxpayers’ money will be spent on the ailing firm unless it proves that it deserves a fresh injection of public funds.
The government poured 2.4 trillion won ($2.1 billion) into the shipbuilder in the early 2000s as the company staggered under the weight of heavy debt in the aftermath of the 1997-1998 financial crisis.
The Daewoo case illustrates how companies are ruined when they are put under the supervision of a state-run bank after a debt-workout program. The CEOs of these companies, normally appointed by the government, tend to collude with labor unions to line their own pockets.
Currently, the KDB, Daewoo’s main creditor bank, has 118 companies under its supervision. Given its limited monitoring ability, the bank should sell off most of the companies in its portfolio.
