STX Offshore & Shipbuilding which until a few years ago ranked as the world’s fourth largest in terms of orders and backlog went under court procedures for liquidation after creditors finally gave up on the company. Who and what should be blamed for its disastrous fall from grace? The answer can be easily found upon a quick look at its corporate history from birth to doom.

STX was created by self-built tycoon Kang Duk-soo, who started his career as a salaried worker at a cement company, ventured into the shipbuilding industry by acquiring Daedong Shipbuilding, a shipyard based in Jinhae near the southern port city of Busan in October 2001. Kang added the shipbuilding arm to STX Group upon seeing how lucrative local shipyards were abundant with orders at a time when the sector was at its heyday. The eager and bold entrepreneur won a license to run a dockyard in Dalian, China. Now Chinese Premier Li Keqiang was the party secretary in Liaoning then and quite aggressive in attracting foreign investment to build his credentials. STX was licensed to invest 100 percent stake - costing the group 3 trillion won ($2.8 billion) - making it a rare case as China only approves joint-venture with local businesses. STX Dalian Shipyard began manufacturing from April 2008. Kang was not satisfied. In September the same year, he bought Aker Yards ASA, Oslo, Norway that ran a number of shipyards across Brazil, Finland, France, Norway, Romania, and Vietnam specializing in cruise and ferries, offshore and specialized vessels and other operations. He spent 1.4 trillion won to create STX Europe.

He opened up his champagne bottle too soon. The meltdown in Wall Street sent shockwave in the financial sector worldwide. The shipbuilding industry sank along with the rest of the global economy. Kang should have faced the music then. The shipyards needed to streamline to brace up for rainy days. But his ego did not allow it. Instead, the headstrong captain commanded his crew to draw as many orders as possible through cheap rates. When the industry became so slow that even bargains fail to bring in orders, his shipyards weren’t able to run on its own on the money they earned from below-cost work. A former STX executive recalled that one cannot make the right management decisions when the owner is headstrong. Blind greed and bullheadedness of an owner-entrepreneur triggered the fall of STX.

Late May 2012, STX Offshore signed an agreement with its main creditor Korea Development Bank (KDB) to address its financial woes. A year later, the company was placed under joint custodianship of creditor banks in return for new bailout. The company should have carried out rigorous cost-cutting efforts, but it didn’t under patronage and pampering from creditors.

Heading the state-owned KDB then was Hong Ky-tack, who in April 2013 was handpicked by President Park Geun-hye soon after she took office. Hong was a typical parachute case with no experience in finance except that he had full confidence from the new president, having worked on her campaign team. The rest of the management advised against extending life support for STX. Hong disagreed. The heads of financial authorities could not pressure him as they too had been lobbied hard by politicians representing Busan and southern coastal regions where the shipyard and subcontractors were based.

Situation turned from bad to worse last year for the shipyard with dearth of new orders. Commercial bank creditors declared they had it and advised the state bank to send the shipyard to the bankruptcy court. Hong again stayed put. He could hardly act in fear of jeopardizing the ruling party’s chances in this year’s election. Meanwhile, money continued to go down the drain. As soon as the election was over, the government and creditors announced that the shipbuilder was headed for court receivership.

Who’s at fault? Kang caused the troubles with his greed and ambition, and financial authorities, politicians, and creditor banks worsened them also because of their self-interests, greed, lack of responsibility, and negligence of duty. Apart from Kang who received a jail term for embezzlement, no one is being punished. But the tale of STX must not end here. Without punishing those accountable, we will continue to see similar versions of corporate failure stories.

By Jung Hyuk-hoon

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