Top financial official indicated that South Korea’s Daewoo Shipbuilding & Marine Engineering Co. (DSME) is headed for out-of-court or court-led reorganization program should bondholders and non-banking creditors do not agree to go along with debt rescheduling scheme to keep the shipbuilder afloat.

“If there is no autonomous consensus among the stakeholders regarding debt restructuring, legal options may have to be considered (for DSME),” Yim Jong-yong, chairman of the Financial Services Commission (FSC) told a legislative hearing on Tuesday.

“Various options including court receivership, workout, and split-up are under study (for DSME restructuring),” he said.

On Thursday, the government will approve the outline for another bailout plan, and state creditors - Korea Development Bank (KDB) and Export-Import Bank of Korea - will announce the details.

Unlike the last bailout program of 4.2 trillion won in October 2015 that entirely relied on the two state lenders, the new scheme would demand haircut of up to 30 percent from bondholders and contribution from commercial lenders to organize fresh 3 trillion won ($2.7 billion) funding for the shipbuilder to avoid criticism about additional bailout with tax funds. The financial authority and KDB are demanding rescheduling of 940 billion won debt and bonds maturing this year as early as April as a condition to allow new funding.

“We are sorry that we have to seek another bailout despite the 2015 rescue (of DSME). But we have to consider the repercussions on the regional economy and financial institutions should a mega company like DSME goes under,” he said.

Yim also vowed that the government will receive consent the shipbuilder’s labor union for self-rescue efforts ahead of the additional debt support as it did for the last bailout.

By Chung Seok-woo

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