NPS at crossroads over Daewoo Shipbuilding rescue plan

Amid questions being raised over its political neutrality, the National Pension Service is again standing at a crossroads that could determine a company’s fate – this time troubled shipbuilder Daewoo Shipbuilding & Marine Engineering.

In the coming weeks, the state pension fund will have to decide on a debt restructuring plan for DSME proposed Thursday by the Financial Services Commission and the firm’s main creditors -- Korea Development Bank and The Export-Import Bank of Korea.

The main creditors and the company said last week that they would do their best to convince stakeholders holding DSME debt such as the NPS, Teachers Pension, Korea Post and commercial banks.

The state-run pension fund holds 390 billion won ($349 million) in DSME corporate bonds, accounting for almost 30 percent of the total. Of that number, 193 billion won of corporate bonds that the NPS holds will mature on April 21.

Korea Post and Teachers’ Pension, which tend to follow the NPS’ lead, hold 180 billion won and 100 billion won, respectively, of the shipbuilder’s corporate bonds, according to local media reports.

This position will give the national pension fund the power to decide whether the new rescue plan goes ahead.

According to the rescue plan, the firm's second bailout plan, after one in October 2015, the two policy banks will pour new liquidity worth 2.9 trillion won to the troubled shipbuilding company only if other stakeholders including bondholders and labor union all share burden of debt restructuring.

The rescue plan requires creditors to swap up to 50 percent of their debt to equity and a grace period for unsecured loans up to five years.

“After the government unveiled the new rescue plan, we have been reviewing all possible measures and we will make a careful decision based on the principle of contributing a long-term benefit for the fund,” the national pension fund said in a statement on Friday.

“The NPS will make a comprehensive review taking into account feasibility of the debt-to-equity swap, the management improvement plan and legal risk.”

In order to pass the debt restructuring plan, more than one-third of bond holders in terms of the total value are required to attend the meeting and more than two-thirds of those participants need to agree. At the same time, it needs one-third of bond holders in terms of number to back the plan.

KDB, the biggest shareholder of DSME, was scheduled to meet private debt holders Monday in order to persuade them to join the rescue plan.

The private debt holders including NPS will meet for five times between April 17 and 18, according to KDB.

If the world’s third-largest fund agrees, it is likely to face a criticism that the nation’s retirement funds are used to save a particular company, raising questions again over its neutrality and independence.

The NPS has been accused of backing a controversial merger between two Samsung affiliates in 2015.

Backed by NPS’s support, Samsung C&T merged with Cheil Industries, despite strong opposition by individual shareholders led by US hedge fund Elliott Associates. The merger cost NPS at least 138.8 billion won, according to the special prosecutors. The special prosecutors indicted the former chief investment officer last month on allegations that he ordered investment-committee members to vote for the merger.

If debt holders fail to reach an agreement, the government will initiate a prepackaged plan, a combination of a debt workout and court protection, under which a restructure plan is agreed in advance of a company declaring its insolvency.

The main creditors and the government said that the so-called P-plan has a risk of “builder’s default,” meaning ship owners can cancel existing orders, if the company goes into court receivership. If the P-plan leads to liquidation of the shipyard, the NPS faces a risk of losing its investment. 

Meanwhile, on Friday, Jung Sung-leep, the CEO of DSME, said he expected to turn the business around this year by reducing risky offshore projects and focusing on liquefied national gas carriers and other specialty vessels.

The company on the same day asked the labor union to cut workers’ wages by 10 percent. The labor union earlier that day said they were willing to accept a proposed pay cut from the company’s creditors.

By Park Ga-young (gypark@heraldcorp.com)