DSME all out to ease liquidity crunch

Daewoo Shipbuilding and Marine Engineering is going all out to secure cash amid growing concerns over a possible liquidity crisis and a widening probe into accounting fraud.

The shipbuilder, currently under a creditor-led corporate rehab, plans to submit later this week a detailed plan to secure funds to its creditors.

According to local reports, the plan may include an earlier than scheduled spinoff and initial public offering of its special-purpose ship business.

The shipbuilder had initially agreed with creditors to separate the cash cow business by 2018.

DSME will now push to separate the division and make it public no later than late this year, they said. It will also plan to sell off a partial stake in the envisioned entity to raise more funds.

DSME is also accelerating cost reductions, including job cuts.

By 2018, the shipbuilder hopes to save 559 billion won ($502 million) of the cost by cutting jobs and outsourcing some work.

Concerns have grown over the company over liquidity crisis as the crisis-ridden shipbuilder faces a wall of debt maturing in the coming months and next year, 400 billion won of commercial paper maturing next month.

DSME recently agreed with four European ship owners that it would receive $470 million of payment from them earlier than expected. This would allow the company to handle the first expiry of the CPs worth 400 billion won by next month.

The company, however, has another wall of debt coming, due next year, which is worth 940 billion won.

The delay in delivery of two drill ships to Angola’s state-run oil firm Sonangol has added to uncertainty over the liquidity concerns.

The African company, which initially agreed to pay $990 million of contract fees when taking over the ships, has postponed to take them, citing financial woes and issues with creditors.

Adding to the woes of Korea’s second-largest shipbuilder, the prosecutors are widening a probe into the firm for alleged accounting fraud.

On Friday, the prosecution summoned DSME chief financial officer Kim Yul-jung for two consecutive days over allegations of manipulating the account books.

Kim is suspected of directing the downsizing of the operating loss of 120 billion won between January and March.

This is the first time that the prosecution called in the incumbent high ranking official of the company as the suspect.

Prosecutors are also eyeing to question DSME CEO Jung Sung-leep soon.

They are also looking into suspicion that the aides of former President Lee Myung-bak had been appointed as the company’s advisors in the past upon the pressures from Kang Man-soo, the former head of Korea Development Bank, which is the largest creditor of DSME. 

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