South Korea’s state-run Korea Development Bank (KDB), the largest shareholder and main creditor of Daewoo Shipbuilding & Marine Engineering Co. (DSME), is mulling additional capital increase in the debt-ridden shipbuilder on the verge of being delisted from the country’s main stock market due to depleting capital.

According to multiple sources from the financial industry on Wednesday, KDB and the country’s financial authority have concluded that cash-strapped DSME needs another round of capital injection and aims to get approval from the board of directors for a capital increase before the end of this year after determining the size and means of the capital injection next month.

KDB is believed to have come up with such a decision in a desperate move to prevent the worst scenario of DSME being kicked out of the country’s main Kospi market. Under Korea Exchange’s securities listing rule, the exchange can delist any company that reports an impairment of over 50 percent of capital for two consecutive years or whose equity capital is completely eroded with debts that outweighs its assets.

In the first half of 2016, DSME’s total asset reached 15.59 trillion won ($14 billion) while total liabilities amounted to 16.82 trillion won, falling into the KRX’s delisting criteria. If the shipbuilder is not able to secure additional capital worth 1.23 trillion won by the end of this year, its delisting from the Kospi would be inevitable.

Previously, KDB had announced a capital increase plan of about 2 trillion won for DSME in total and has carried out 414.2 billion won worth of capital increase as of the end of last year. Industry observers note that the state-run lender is technically capable of utilizing the remaining 1.6 trillion won for additional capital injection into DSME.

KDB, however, would only have to add capital of about 500 billion won if DSME successfully delivers two drill ships to Angolan state-run oil firm Sonangol EP and receives 1 trillion won for the ships within this year. Sonangol that has failed to secure enough money has pushed back the ships’ delivery date that was originally set by July.

But additional capital injection into DSME regardless of its size would not be easy amid worsening public sentiment toward DSME and the shipbuilding industry that have shown no signs of recovery. DSME on Wednesday reported worse-than-expected earnings for the second quarter ending June, posting 1.22 trillion won in net loss that is 1 trillion won larger than the initial market estimate.

The shipbuilder is also under prosecutor’s scrutiny over the company’s former and current management’s wrongdoings and irregularities including alleged accounting frauds. The price of the company’s shares suspended from trading has also fallen to 4,480 won, which is below its face value.

By Kim Jung-hwan, Chung Seok-woo

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