The National Pension Service, South Korea’s largest institutional investor that owns about 30 percent of 1.35 trillion won ($1.19 billion) corporate bonds issued by DSME, has deferred a decision on whether to accept fresh debt adjustment plans for DSME proposed by the country’s financial authority to keep the shipbuilder afloat.

Because the NPS “still doubts DSME’s financial conditions and sustainability” so it can’t make a decision right now on whether to accept the newly proposed rescue plans, the NPS said in a statement through its investment office on Thursday. It is expected to announce its final stance before the end of next week.

Last week, NPS held an investment committee meeting and reviewed whether to accept a debt rescheduling plan for DSME based on documents submitted from the sinking shipbuilder’s main creditor Korea Development Bank (KDB).

At the three hour-long meeting, committee members discussed various scenarios and conditions such as possible redemption rates should DSME corporate bonds are swapped into equity, appraisal loss when the shipyard goes under the so-called “pre-packaged plan” - a swifter court receivership procedure, and legal issues tied to the newly proposed bailout. But citing a lack of information in the documents, it failed to make a decision, according to industry sources.

Regardless of whether to accept the debt rescheduling plan, NPS committee members have reaffirmed its stance to take additional legal actions against DSME for losses from its investments in DSME’s corporate bonds caused by the company’s accounting fraud. NPS’s investment office is due to report the outcome of its discussion next week to the risk management committee.

NPS currently owns 30 percent, or 388.7 billion won, of 1.35 trillion won worth corporate bonds issued by DSME. In particular, it owns 45.45 percent, or 200 billion won, of 440 billion won worth of corporate bonds of DSME that are due to mature later this month.

KDB and the financial authority recently announced a plan to inject a fresh funding of 2.9 trillion won in DSME that already received a 4.2 trillion won bailout from KDB and another state creditor Export-Import Bank of Korea (Korea Eximbank) in 2015. They aim to finalize the new rescue plans including conversion of 50 percent of DSME’s debt into equity and rescheduling of the remaining 50 percent at a debtholders’ meeting scheduled on April 17 and 18 before injecting the 2.9 trillion won fresh fund.

If the new bailout plan that demands pain-sharing from private banks and bondholders is rejected due to opposition by NPS, DSME would turn to the pre-packaged plan as an alternative solution.

According to conservative assumptions by accounting firms, DSME will be short of about 5.1 trillion won next year to sustain operation and repay debt.

By Kim Hyo-hye

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