Issues over DSME-Sonangol contract to be cleared up

Speculation is growing that the takeover problem of the Sonangol project is expected to be clear no later than this week, determining whether Daewoo Shipbuilding and Marine Engineering will be able to receive the scheduled contract fee, sources said Monday.

In October 2013, Angola’s state-run oil company Sonangol placed an order for two drill ships with the Korean shipbuilder with $1.2 billion. 

Sonangol initially agreed to pay 80 percent of the contract fee -- $990 million --when it takes over the two completed ships each in June and July. The fee for the 20 percent was pre-paid.

The African company however, has delayed the takeover, citing financial woes, which was majorly caused by a Norwegian export credit guarantee agency’s withdrawal.

For the 80 percent of the contract fee, instituttet for eksportkreditt (GIEK) stood as the creditor for 38 percent -- $370 billion -- while Korea Trade Insurance Corporation was in charge of 62 percent

The GIEK, however, later withdrew from the Sonangol project.

Korea is remaining cautious of the circumstances of Sonangol’s creditors as their decision to extend the expiry is a primary step.

Currently, other international creditor banks, which have financially supported Sonangol, are also considering withdrawing their support for the Angola state-run company, given the drop in oil prices and other financial issues.

If they withdraw from Sonangol, it is projected to pose more challenges to DSME. The decision is expected to be made later this week.

Once the expiry is extended, the KTIC will consider standing as the guarantor for the 38 percent of the contract fee, that was formerly taken by the GIEK, to carry out the prompt takeover of the two drill ships.

“(The KTIC) is considering shouldering 70 percent of the concerned amount and hopefully look for support for the rest from other local organizations,” sources from KTIC said.

Although the support from Korea Development Bank and Korea EximBank was reportedly discussed, the two parties decided to stay away from the creditor’s issue, due to the potential public opposition to providing direct financial support to DMSE through the government-run bank.

When the shipbuilder came under fire earlier this year for accounting fraud, public criticism was drawn over the government’s decision last year to support the ailing company with more than 4 trillion won ($3.6 billion) through the government-run bank.

By Lee Hyun-jeong  (rene@heraldcorp.com)