KDB Prepares "Plan B" for DSME Bankruptcy



The Korea Development Bank (KDB), the main creditor of Daewoo Shipbuilding and Marine Engineering Co., Ltd. (DSME) has taken a two-track approach for DSME in case DSME’s stakeholders can’t give consent to the debt-for-equity swap program which would make it slip into court receivership. The KDB has started to work on the relevant preparatory work.

On Mar 27, the KDB said it had consulted with the private creditor bank of DSME, hoping that the debt-for-equity swap program and debt adjustment plan could be approved. Officials from the KDB said they have already taken a two-track approach.

On Mar 23, Korea Development Bank (KDB),Korea's state-owned bank, and the Export-Import Bank of Korea (KEXIM), said as creditors of DSME, they would offer a new aid program to the troubled DSME, totaled 6.7 trillion won (about 5.98 billion USD) provided that all stakeholders of DSME agree to a debt-for-equity swap program.

This is the second round of aid program for DSME, offered by KDB and KEXIM. According to the program, if the lenders and bondholders agree to swap DSME’s 2.9 trillion debt for new shares, DSME would be able to get a new loan of 2.9 trillion won. The aid program also includes a 3-to-5 year’s grace period for unsecured loans of 900 billion won.

If the debt-for-equity swap program can not be approved, DSME would carry out new corporate rehabilitation programs, including debt restructuring and court receivership.

Even so, analysts warned that it was not easy for DSME to get new money. DSME plans to hold bondholders' meetings from Apr 17 to 18, but it may be difficult to obtain bondholders' agreement on debt-for-equity swap program.

The National Pension Services(NPS), one of the bondholders of DSME, recently said that it would take a conservative plan as much as possible because the inability to determine the value of the debt of DSME, who participated in accounting fraud. This means that it is difficult for NPS to agree to DSME’s debt-for-equity swap program. The NPS has even refused officials’ contact requests from DSME and KDB.

Of the 1.35 trillion won corporate bonds that had not yet been paid by DSME, 28.9% were held by the NPS, totaling 390 billion won. Taking the Korea Post (holding 180 billion won corporate bonds) and other groups into account, investors said it would follow the decision of the NPS who plays a key role in the rehabilitation of DSME.