KDB chief advocates $6 billion bailout “cannot, must not be” delayed

State-run Korea Development Bank (KDB) admitted poor judgment over Daewoo Shipbuilding & Marine Engineering (DSME) and apologized for having to organize another multibillion-dollar bailout for the shipbuilder.

“Without radical action” DSEM could miss obligation for the bonds maturing as early as in April, and “given the urgent situation, we cannot and must not delay normalization steps,” said Lee Dong-geol, chief executive of state-run Korea Development Bank (KDB) after financial authorities and state lenders concocted a near $6 billion rescue package for DSME including 2.9 trillion won in fresh funding and rescheduling on existing 3.8 trillion debt on condition that private debt-holders all go along with the new plan.

If private debt-holders resist taking in haircut and relief in borrowing terms, the shipbuilder would most likely miss 440 billion won obligation due in April and could be headed for the bankruptcy court with prepackaged restructuring arrangement excluding smaller creditors, KDB warned. The shipbuilder has 1.5 trillion won bonds maturing by next year.

“The funding must take place immediately. The cost would get bigger when delayed,” he said.

Unlike the 2015 bailout package that entirely relied on the two state creditors - KDB and Export-Import Bank of Korea (Korea Eximbank), the new plan demands pain-sharing from private banks and bondholders.

“If debt is fundamentally eased with pain-sharing from all lenders, bondholders, and union worker and new funds are injected, I am confident that the company would be able to make steady income,”

State lenders in 2015 organized a bailout of 4.2 trillion won based on forecasts that it could secure new orders worth $11.5 billion by the end of 2016, but actual orders turned out to be a mere $1.5 billion. KDB is DSME's main creditor bank and largest shareholder with a nearly 80 percent stake.

“KDB will not avoid responsibility for its failure in overseeing DSME’s operations, he added.

According to conservative assumptions by accounting firms, DSME will be short of about 5.1 trillion won next year to sustain operation and repay debt.

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