The government and state lenders by next month will complete refinancing of Daewoo Shipbuilding & Marine Engineering (DSME) to prevent cancellation of its shares because of severely impaired capital status through a 2.8 trillion won ($2.4 billion) bailout program in debt-to-equity swap and purchase perpetual debt.

Policy lender Korea Development Bank (KDB), the largest stakeholder in the troubled shipbuilder, will convert 1.8 trillion won existing debt into equity, and Export-Import Bank of Korea (Korea Eximbank), already its largest creditor, will buy perpetual bond worth 1 trillion won issued by the shipbuilder.

“The two policy banks agreed to bolster capital of DSME beyond market expectations within the 4.2 trillion won bailout budget set in October last year,” said KDB Chairman Lee Dong-geol in a press conference on Tuesday to make it clear that the bailout would not mean new public funding.

“We want to complete the procedures as soon as possible so that DSME shares could be able to trade from March,” he said.

DSME’s debt reached 16.8 trillion won as of the end of June, overwhelming assets worth 15.89 trillion won. The company’s shares have been suspended after it came under accounting fraud scheme to hide its deficits for several years. A company whose actual assets are worth less than the stated value of outstanding shares loses eligibility to trade on the stock exchange. DSME losing status as a publicly-trading company on top of its heavy debt pile could face insolvency, wasting billions of tax funds that had gone into the shipbuilder since it was salvaged during the collapse of Daewoo Group in late 1990s.

Government-owned Korea Eximbank will join the bailout program through purchase of perpetual bonds, a fixed-income security with no maturity and obligation to pay back the principal. As the bond is classified as assets, the issue in perpetual papers would not raise debt-to-asset ratio of the shipbuilder.

DSEM plans to use the proceeds to pay off some of its earlier loans from the Eximbank, helping to further lower debt ratio and meet stock exchange guideline on capital status.

By Noh Seung-hwan

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