South Korea’s financially stricken Daewoo Shipbuilding & Marine Engineering Co. (DSME) on the verge of bankruptcy will definitely survive through the current crisis if it wins an additional financial support of 2.9 trillion won ($2.6 billion) from creditors, said DSME chief executive and president Jung Sung-leep. Finding a new owner among the country’s other two major Korean shipbuilders - Hyundai Heavy Industries and Samsung Heavy Industries - would be the best option for the future of DSME after it gets back on its own feet, he added during an interview with Maeil Business Newspaper on Tuesday.

Jung who rejoined DSME as its chief in June 2015 to save the cash stripped company after he stepped down from the top position of DSME and left it nine years ago blamed reckless management, aggressive offshore projects and lack of risk management for about 8 trillion won worth of losses made under his successors Nam Sang-tae and Ko Jae-ho.

DSME is currently waiting for the final nod for injection of additional funds worth 2.9 trillion won from the creditor group after the 4.2 trillion won bailout made by its creditors Korea Development Bank (KDB) and Export-Import Bank of Korea in October 2015 has failed to resurrect the ailing shipbuilder.

Q. What has led DSME to fall into the current crisis?

A. The company has gotten into trouble due to wrong judgments made by former executives and lax management. On top of them, aggressive offshore projects have led DSME to post about 8 trillion won losses. Former CEOs also failed to manage risk during a prolonged boom in the shipbuilding industry.

Q: What has mainly led to poor management?

A: The company’s CEO whose term renews every three years has rather devoted his time and efforts to boost external performance. Organizational management was also loose.

Q: Do you think it is urgent to find a new owner for DSME?

A: Yes, we should find a new owner for DSME as soon as possible. The company needs a new owner that can set up a new direction for it. It needs new corporate DNA and employees.

Q: Who you recommend as DSME’s new owner?

A: After taking into account the current global economic conditions and the country’s industry competitiveness, I think it would be better (for the local shipbuilding industry) to have big 2 (shipbuilders) instead of big 3. Once DSME’s business normalizes, it would be better if either Hyundai Heavy Industries or Samsung Heavy Industries takes over it.

Q: There are mounting criticisms that it would be a waste of taxpayers’ money if 2.9 trillion won is injected into a “zombie company” (that needs bailout) and that it goes against market logic.

A: I don’t think it goes against the logic of market. Creditors also believe that it would be better to save DSME by injecting additional 2.9 trillion won funds than liquidating it. I agree with them. With (additional) 2.9 trillion won funds, DSME would be able to deliver 84 vessels by next year, which will generate 14.3 trillion won in cash for DSME. It will also be able to resolve 9.1 trillion won worth of refund guarantees. On the other hand, if the company is liquidated, losses would amount to at least 17 trillion won or as much as 59 trillion won.

Q: Are you confident that DSME will stand back on its feet if 2.9 trillion won worth of funds are additionally injected?

A: Certainly. Of the backlog of orders, 70 percent are vessels and 20 percent are special (defense) vessels. Less than 10 percent are offshore plants that have mainly caused the current problem. The operating profit rate of merchant vessels over the past five years is 3.6 percent while that of liquefied natural gas vessels is 5.8 percent. And (the orders) have not been received on discounted rates. The company’s current business portfolio is completely different from that of the past when massive losses had incurred. The (current) structure has nothing to lose. The company will swing to profits in the first half of this year.

By Moon Ji-woong

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