by Michael Hansen, Hawaii Shippers Council, October 29, 2015
South Korean online publication Chosun Ilbo reported on October 28th in an article entitled “Daewoo Shipbuilding to Get W5.2 Trillion Bailout” that state lenders will bail out the financially strapped Daewoo Shipbuilding & Marine Engineering Co., Ltd. (DSME), the largest shipbuilding company in the world, with a U.S. $5 Billion rescue plan.
The two state-owned creditors are the Korea Development Bank (KDB) and the Export-Import Bank of Korea commonly known as the Korea Eximbank (KEXIM).
This follows from a Lloyd’s List report from October 12th entitled “Will South Korean taxpayers continue subsidizing newbuilding orders? Role of state lenders under public scrutiny after heavy losses at yards,” which predicted government backed bailouts for the major shipbuilding companies including DSME.
In our commentary to the Lloyd’s List article posted on October 13th, we referenced a U.S. expert in new ship construction with extensive experience in S. Korea who advised, without government subsidies, the major S. Korean shipbuilders would have to raise their prices by around 20%. That of course pales in comparison with the 500% premiums to build a oceangoing self-propelled ship in a major U.S. shipbuilding yard.
On October 22nd, we posted comments to an article from Business Korea describing how intimately involved DSME was with the design, sourcing of materials and equipment, and construction of the recently launched Jones Act ship ISA BELLA at the General Dynamics NASSCO shipbuilding yard in San Diego. NASSCO has a long term relation with DSME to design and provide other services for the commercial ships they construct in San Diego for the Jones Act market.
It is interesting that the Jones Act industry criticizes the South Korean shipyards as being subsidized and competing unfairly to justify in part continuation of the domestic ship build requirement of Jones Act cabotage, and then in turn depend on alliances with subsidized South Korean shipbuilders for a suite of services critical to their ability to construct modern ships.
Korea Development Bank and Export-Import Bank of Korea will bail out ailing Daewoo Shipbuilding and Marine Engineering with W4.2 trillion (US$1=W1,134).
Daewoo posted a total loss of W5.3 trillion in marine structures and floating plants.
A government official on Tuesday said KDB, the largest shareholder in the firm, has decided to increase Daewoo's capital by issuing new stocks worth W1 trillion.
KDB and Ex-Im Bank each will provide half of the remaining W3.2 trillion. KDB will also convert W1 trillion from Daewoo's debt into equity, raising the actual bailout to W5.2 trillion.
The cash injection will be given step by step until the first half of next year.
Daewoo on the same day announced an operating loss of W1.2 trillion in the third quarter. During the second quarter it disclosed an accumulated deficit of W3.2 trillion that had not been reflected in the financial statements before.