Daewoo Shipbuilding and Marine Engineering (DSME) may be headed for a prearranged bankruptcy revival scheme as a major bondholder National Pension Service (NPS) remains recalcitrant to the government-led bailout program that requires all lenders including bondholders to push back maturity and adjust down rates.

The government had given ultimatum to private lenders and bondholders that it would have state lenders inject fresh 2.9 trillion won ($2.5 billion) loans if they agree to reschedule existing debt to prevent the shipbuilder from going to the bankruptcy court, under which creditors could lose most of their investment and debt holdings.

On Monday, heads of Korea Development Bank (KDB) and the Export-Import Bank of Korea (Korea Eximbank) - the two state lenders and the shipbuilder’s largest shareholders - and DSME invited 32 institutional investors to present a revised bailout outline. The institutions sent non-executive level representatives in show of defiance to the government-forced program.

The KDB proposed to bondholders that it would repay them first if they agree to push back their bond maturity to another three years. Originally it had demanded half of the existing bonds converted into the equity and maturity date of the remaining half pushed back by five years.

The state bank however turned down the NPS demand of additional capital reduction on equity holdings of the two lenders and repayment of the bond maturing in April as well as swap of refund guarantee calls. The national pension holds 388.7 billion won out of 1.35 trillion won outstanding DSME bonds. It owns 43 percent of the 440 billion won bonds maturing on April 21.

The KDB maintains that the state lenders cannot further write down as they have already reduced their equity capital by 10 to 1 stock ratio in late last year, leaving just the 4.2 trillion won freshly injected in October 2015. Also it cannot give the just April bonds exception as it could trigger complaints from other bondholders. The RG papers also cannot be converted to equity as they are credit on future payment.

The NPS told Maeil Business Newspaper the changes are hardly any better, suggesting it won’t go along with the voluntary workout. The NPS will make a final decision by Wednesday at the latest. The full creditors’ meeting to vote on a new bailout for DSME is set for April 17-18. If the outline fails to pass, the shipbuilder will be placed under prepackaged program where debt-to-equity swap and haircut ratio could soar to 90 percent. After court freezes the debt, the state lenders will inject fresh funding for fast-track revival of the shipbuilder.

By Chung Seok-woo and Kim Hyo-hye

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]