Daewoo SME set for restructuring amid big losses

Daewoo Shipbuilding & Marine Engineering Co. is set to face financial restructuring as the world’s second-largest shipbuilder is projected to book massive losses in the second quarter of this year.

After a local newspaper reported Wednesday that the South Korean shipbuilder may have booked as much as 2 trillion won ($1.8 billion) to 3 trillion won in unreported losses, stemming from its low-margin offshore project orders, the company’s shares plunged by the maximum 30 percent to reach a seven-year low of 8,750 won.  

The state-run Korea Development Bank -- the shipbuilder’s majority shareholder with a 31.46 percent stake -- confirmed the report, stating that it is “foreseeing a massive debt in the first half of 2015.”

In the case that Daewoo Shipbuilding faces a liquidity crisis, KDB will reportedly review plans to increase the company’s paid-in capital by issuing new shares. 

The bank has, however, denied the possibility of pursuing active restructuring measures including a corporate workout or a voluntary debt rescheduling program. 

A workout, if pursued, could cause a major stir in the banking sector, since local banks have lent Daewoo a total of roughly 12.5 trillion won under credit, according to NH Investment & Securities.

Other potential measures under discussion include “partially selling the company’s overseas assets and domestic property holdings” to acquire the capital needed to finance the company, according to KDB.

Amid a global economic downturn and rising shipbuilding costs, the nation’s top shipyards, including Daewoo Shipbuilding, Hyundai Heavy Industries and Samsung Heavy Industries, have faced tough business conditions in recent years.

As global oil prices plunged to record lows last year, international oil companies were pushed to cut back their spending, delaying or canceling their orders for drill ships and offshore production facilities. 

Last year, Hyundai Heavy recorded its biggest operating loss to date at 3.25 trillion won, a significant drop in comparison to an operating profit of 802 billion seen the previous year. Samsung Heavy also saw its operating loss reach 362.5 billion won in 2014. 

In the first quarter of this year, Daewoo Shipbuilding entered the red for the first time in roughly eight years, recording an operating loss of 43.3 billion won. 

Meanwhile, KDB has launched an internal investigation into the Daewoo shipbuilder, vowing to “take comprehensive measures to address the given situation in consultation with all related creditors.”

By Sohn Ji-young (jys@heraldcorp.com)