More uncertainty looms over DSME’s fate

Uncertainty continues to linger over the fate of Daewoo Shipbuilding and Marine Engineering, as its labor union has refused to accept the restructuring plan creditors have demanded as a precondition for a financial injection.

The DSME union Monday said there was “no change in our initial decision not to participate in the self-rescue plan,” objecting to the company’s “unilateral” restructuring plan.

“Although we can put efforts into saving the company, (we) cannot accept the request to take part in the self-rescue plan that unilaterally cuts jobs,” said the union.

The firm’s two largest creditors -- the Korea Development Bank and Export-Import Bank of Korea -- demanded last week that the union participate in the restructuring plan and refrain from strikes in return for a 3.2 trillion won ($2.7 billion) injection of capital into the company

They requested the company get an approval letter from the union by Wednesday, ahead of the board meeting Friday.

Financial Services Commission Chairman Lim Jong-ryong also pressured the union Monday to take part in the move, warning that the union not approving of the self-rescue plan could fundamentally disable the normalization of the company.

“To solve the company’s impaired capital issue, there is a need for the union to actively participate in sharing loss when creditors and the company are all participating. (The FSC) has no choice but to handle (the company) in accordance with rules (such as cutting a financial injection) if the union does not express the will to participate in the restructuring move,” said Lim.

DSME’s union remains adamant as it demands that the company and creditors ensure three conditions first -- making an injection without preconditions; guaranteeing the full employment of all workers; and ensuring independent and responsible business management of both the company and the union.

If the union’s approval letter is not delivered to the creditors by Friday, the banks may withdraw their injection plan, leading to a higher possibility of the shipbuilder’s delisting and bankruptcy.

For the shipbuilder, concerns over liquidity woes continue amid the delay of ship delivery and cumulative operating loss.

Angola’s state-run oil firm Sonangol, which postponed the handover of its two drill ships twice earlier this year, is likely to delay it again due mainly to a lack of funds, sources said. The second deadline was slated for later this month.

Negotiation is currently underway to hand over the ship and receive the contract fee of $1 billion as soon as possible, the company said. The delivery of the two ships is considered a key step to alleviating DSME’s liquidity woes.

If the delivery issue is not solved, the shipbuilder may face a severe liquidity crisis as bonds worth 940 billion won are set to mature between April and November next year.

Cumulative operating loss is another burden for DSME as it failed to turn to profit-making for two consecutive quarters.

In the third quarter of this year, the shipbuilder recorded 3.5 trillion won of sales and 141 billion won in operating loss. While the operating loss decreased, sales dropped by 9.9 percent compared to the previous quarter, the company said.

For the last three quarters, the company saw about 10 trillion won of sales, 590 billion won of operating losses and 1.5 trillion won of net losses

To secure liquidity, the company is currently seeking to sell its 14 assets, including overseas subsidiaries.

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