STX Offshore & Shipbuilding, Korea’s fourth largest shipbuilder, is headed for court management after the shipbuilder failed to recover while running 38 months on creditors’ relief program.

Major creditors including state entities Korea Development Bank, Export Import Bank of Korea, NH Bank and Korea Trade Insurance Corporation in a meeting on Wednesday decided to end their life support for the ailing shipbuilder. Creditors will hold a final meeting later this month and file for court receivership for the company with the Seoul District Court early next month under the bankruptcy law.

“A due diligence report by an outside accountant concluded that shift to court receivership is a better option under current circumstances where the shipbuilder no longer draws new orders and make profit,” said an official at a creditor bank.

Since creditors agreed to help out the troubled shipbuilder in April 2013, they injected fresh funds of 4 trillion won ($3.36 billion) to keep the company afloat. Letting the company take insolvent procedures suggests creditors have made a wrong decision then and would have to pay by seeing much of their money go down the drain.

The local banking sector could run into trouble if ship-owners all rush to demand refund guarantees, security a shipyard’s bank provides for installments on vessel orders should a shipyard defaults. The refund guarantees on STX’s orders amount to 1.2 trillion won.

Creditors have been discussing to take insolvent procedures for STX after the shipbuilder completes and fully delivers all orders slated for the first half of next year. But they concluded that they would lose more if they dither further.

A decision to hand STX to the court requires vote of approval from 75 percent of creditors. The plan is ready to go as KDB and Eximbank that shoulder 80 percent of the debt load favor the idea.

It would be the first major Korean shipbuilder to go under court receivership. STX until a few years ago commanded the world’s fourth rank on order book and backlog terms.

Creditors meanwhile are drawing up countermeasures to prepare for a flood of demands for refund guarantees.

By Park Yong-bum and Chung Seok-woo

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