In yet another bailout for the troubled Daewoo Shipbuilding & Marine Engineering Co., Ltd (DSME), the government is considering making the state-owned Export-Import Bank of Korea convert 2 trillion won ($1.81 billion) worth debt into equity in the shipbuilder to bolster its capital base. Separately, the current majority stakeholder and state lender Korea Development Bank would strengthen the shipbuilder’s capital by 1.6 trillion won through reduction of the bank’s 49.7 percent equity capital and repurchase of the shares.

According to sources in the industry and government, financial authorities are discussing debt-to-equity conversion plan with the Eximbank. But the Eximbank in a Tuesday regulatory filing denied it was discussing the matter.

The debt-to-equity swap will help DSME dramatically cut its debt and improve its balance sheet. After the transaction, the Eximbank will become the second largest shareholder of DSME.

DSME has debt more than 7 trillion won owed to the Eximbank including the bank’s refund guarantee to the shipbuilder, and of this, some 2.3 trillion won are classified as ordinary bank loans.

The government will speed up efforts to restructure DSME’s capital base in mid-October right after the ongoing parliamentary inspection ends. DSME’s shareholders meeting will be held in December to finalize the decision as quickly as possible.

DSME’s immediate task is to escape from complete capital erosion caused by massive losses in the first half of this year. If it fails to do so before it reports on fiscal 2016 in March next year, the shipbuilder will be kicked out of the stock market for failing to meet capital criteria. If it is not publicly trading, it would be difficult for the shipbuilder to win further orders and raise funds.

To restructure DSME’s capital base, the government will inject some 1.6 trillion won into the shipbuilder after the KDB erases some of its 49.7 percent share in DSME. DSME is supposed to receive about 1 trillion won from its delivery of drill ships to Angola`s national oil company, but the payment could be delayed until early next year.

The government’s capital boosting plan is also dependent on the ongoing investigations into DSME’s accounting fraud. But further bailout could raise criticism as DSME had failed to recover after 4.2 trillion won rescue funding late last year.

By Park Yong-bum and Chung Seok-woo

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