South Korean financial authorities and state lenders are seeking to place Daewoo Shipbuilding & Marine Engineering Co. (DSME) under creditors-led workout program and management in the scale of 3.94 trillion won ($3.4 billion) including fresh loans of around 3 trillion won as the shipbuilder faces another liquidity crisis despite 4.2 trillion won bailout in 2015, sources said on Tuesday.

A recent due diligence by Samjong KPMG at the order of the Financial Services Commission (FSC) and DSME’s main creditor Korea Development Bank (KDB) discovered the shipyard is in need of around 3.5 trillion won this year to stay afloat.

The FSC plans to persuade state lenders KDB and Export-Import Bank of Korea as well as commercial banks KB Kookmin Bank and Shinhan Bank to arrange a new rescue package that would include new loans of 3 trillion won on top of rollover of 940 billion won worth bonds that mature this year to prevent the shipbuilding from going under.

“We would have to ask both public and private lenders to help out for national interests as the state would have to cover as much as 57 trillion won for failed deliveries if DSME goes bankrupt,” a senior official of a state creditor said.

Creditors-led workout is a corporate restructuring means to help a company turn around through relief from debt obligations. Workout would include not only loans but bonds. The details will be worked out by state lenders and reported to a broader creditors’ meeting led by the government next week.

When excluding the 940 billion won bond obligation for refinancing, the shipyard would be in need of around 2.5 trillion won. But authorities and creditors want to propose coming up with fresh funding of 3 trillion won to be on the safe side. They would first have to persuade bondholders expecting their papers to mature in April, July, and November this year to push back the due dates.

If bondholders refuse to comply with rescheduling, the shipbuilder could be headed for court-led prepackaged bankruptcy. Under the plan, at least 30 percent of the liabilities could be written off and also allow creditors to inject fresh funding to help the company out.

If the company still fails to turn around, it would have to streamline to a mid-sized dock and sell offshore and defense businesses to another entity.

The workout program would initiate with approval from three quarters or more of the creditors including the bondholders and non-banking sector. If opposed, creditors must be satisfied with debt returns based on liquidated value.

By Chung Seok-woo

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