Creditors mull 3 tln won equity swap, stocks purchase for Daewoo Shipbuilding

Creditors of Daewoo Shipbuilding & Marine Engineering Co. are set to announce a debt-for-equity swap and other measures, worth 3 trillion won ($2.62 billion), for the embattled shipbuilder next week, to help one of the country's big three shipyards avoid a possible delisting from the local stock market, industry sources said Tuesday.

The country's two policy lenders -- the Korea Development Bank (KDB) and the Export-Import Bank of Korea (EXIM Bank) -- have said they would provide a combined 4.2 trillion won worth of financial aid to Daewoo Shipbuilding, which breaks down to 2.6 trillion won from KDB and 1.6 trillion won from the other lender.

The financial support includes a debt-for-equity swap and the purchase of stocks to be issued by the shipbuilder.

The KDB has originally planned to spend 2 trillion won for a debt-for-equity swap and a capital increase for the shipbuilder, and EXIM Bank had not planned to join a capital increase for the shipyard.

But the thorny issue facing the creditors is that Daewoo Shipbuilding's new shipbuilding orders have been smaller than what they had expected.

They expect this year's new order for Daewoo Shipbuilding to be around $3 billion, far short of their initial estimate of $10.8 billion.

"The two lenders are working to finalize the detailed plan," said an industry source. "But they have to narrow differences on the amount that they should chip in."

According to the sources, EXIM Bank may buy debts to be sold by Daewoo Shipbuilding, which can be counted as capital, but the debt sale should meet a set of strict criteria.

Daewoo Shipbuilding's capital base has been eroded due to mounting losses, facing the risk of being delisted from the local stock market.

In the first half of the year, Daewoo Shipbuilding suffered a net loss of 1.19 trillion won with its debt ratio exceeding 7,000 percent.

South Korean shipbuilders have been under severe financial strain since the 2008 global economic crisis which sent new orders tumbling amid a glut of vessels and tougher competition from Chinese rivals.

The country's top three shipyards -- Hyundai Heavy Industries, Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. -- suffered a combined operating loss of 8.5 trillion won last year. The loss was due largely to increased costs stemming from a delay in the construction of offshore facilities and an industrywide slump, with Daewoo Shipbuilding alone posting a 5.5 trillion won loss.

The shipbuilders have recently drawn up sweeping self-rescue programs worth 10.35 trillion won in desperate bids to overcome the protracted slump and mounting losses. (Yonhap)