Daewoo Shipbuilding Bondholders Okay Bailout Plan
Debt-to-equity swap plan is condition of $2.6 bln
South Korea's Daewoo Shipbuilding & Marine Engineering Co Ltd
on Monday won near unanimous approval for a debt-to-equity swap
plan in the first three of five bondholder meetings, as the
world's largest shipbuilder battles to stay afloat.
The votes were held hours after Daewoo's biggest bondholder, the
National Pension Service (NPS), said it had agreed to the
proposal. That move made it likely other bondholders would follow
suit, creditor bank officials said, allowing the shipbuilder to
meet conditions of a $2.6 billion bank bailout.
The shipbuilder has been pushed to the brink by the impact of
historically low oil prices, which caused delays in payments for
complex offshore facilities. At risk is an estimated 50,000 jobs
and an economic hit of tens of billions of dollars.
Its predicament follows the bankruptcy and liquidation of
compatriot Hanjin Shipping Co Ltd after creditors declined
further support last year for what was the world's
seventh-largest container shipper.
"Accepting the debt restructuring will be more advantageous to
improve the fund's returns," NPS, the world's third-largest
pension fund, said in a statement earlier on Monday.
Holders of about 1.5 trillion won ($1.32 billion) worth of Daewoo
bonds must agree to swap half of debt owed to them for equity,
and allow Daewoo to suspend repayment of the rest for three
years, so Daewoo can meet conditions for $2.6 billion worth of
financial assistance from state banks.
Five meetings have been planned for Monday and Tuesday to discuss
the proposal. Agreement came from 99.99 percent of bondholders
present at the first meeting where attendance reached 80 percent,
98.99 percent at the second with 89 percent attendance, and 96
percent at the third with 81 percent attendance.
The proposal is likely to be approved at all meetings as large
bondholders such as Korea Post are likely to follow the lead of
the NPS due to the fund's size and influence, creditor bank
The officials declined to be identified due to the sensitivity of
the matter. Korea Post told Reuters it decided to agree to the
proposal after the NPS agreement was made public.
SHARING THE PAIN
The NPS is Daewoo's largest bondholder, with about 390 billion
won worth of bonds, Yonhap reported.
It accepted the proposal after Korea Development Bank (KDB) and
Export-Import Bank of Korea (KEXIM) agreed to store bond payments
in an escrow account before bonds mature, and after they
effectively pledged to pay bondholders before pursuing their own
claims, creditor bank officials said.
"We decided to approve the proposal after considering KDB and
KEXIM's measures reinforcing the repayment of bonds whose
maturity will be extended," an NPS spokesman told Reuters.
The two banks have supported Daewoo with 4.2 trillion won since
October 2015, adding to a state bailout in the late 1990s during
the Asian financial crisis. To justify more, "all stakeholders
must share the pain", the Financial Services Commission said when
setting the debt-to-equity condition.
The government plans to sell its stake in Daewoo after shrinking
the shipbuilder over two years to a company generating revenue of
7 trillion won from about 13 trillion won last year, KDB Chairman
Lee Dong-geol said at a news briefing on Sunday.
Daewoo reported a net loss of 2.8 trillion won last year.
Reporting by Joyce Lee
Apr 17, 2017