By Park Sang-soo
SEOUL, April 18 (Yonhap) -- The fate of Daewoo Shipbuilding & Marine Engineering Co. will largely hinge on its implementation of bold self-rescue measures and a revival of new orders, even after bondholders of the world's largest shipyard by order backlog accepted the massive debt restructuring proposal, industry watchers said Tuesday.
Over the past two days, investors who hold some 1.3 trillion won (US$1.13 billion) worth of bonds sold by Daewoo Shipbuilding have overwhelmingly voted for the debt rescheduling proposal drawn up by its creditors led by the state-run Korea Development, a precondition set by the creditors for a fresh cash injection of some 2.9 trillion won into the shipyard.
Holders of commercial papers sold by the shipyard, worth 200 billion won, are also required to decide on the debt rescheduling plan this week, with watchers expecting them to support the scheme.
Such a development is expected to give the shipyard a new lease to sort out its problems and stay afloat till conditions improve.
The approval came after weeks of negotiations between the KDB-led creditors and the National Pension Service, Daewoo Shipbuilding's largest bondholder, over the debt restructuring, with the latter wanting to reduce the losses to be incurred on it as much as possible.
The KDB-led creditors sweetened their offer with a pledge to keep money in an account for bond repayments before its maturity. Creditors and policymakers have warned that under the "pain-sharing" principle, the shipyard would be put under near court receivership, unless bondholders agree to the debt rescheduling measures.
Even after the debt rescheduling plan is approved by bondholders, Daewoo Shipbuilding is estimated to have a shortfall of some 1.5 trillion won this month and next month. Given this, the KDB-led creditors are expected to inject sizable sums of cash into the shipyard from May with a proposed debt-for-equity swap to be completed in June, industry sources said.
With the worst scenario for the embattled shipbuilder seemingly averted, the shipyard will be expected to face growing pressure to proceed with its promised self-rescue measures worth 5.3 trillion won until 2018. As part of these measures, the shipyard has already sold off noncore assets and cut its workforce, through which it has raised or saved 1.8 trillion won.
Next year alone, Daewoo Shipbuilding has to implement a 3.5 trillion won self-rescue plan, but Jung Sung-leep, president of Daewoo Shipbuilding, acknowledged earlier that the shipyard is left with nothing to sell in terms of assets.
The shipyard's labor union accepted a proposed pay cut for workers from the shipyard's creditors. Daewoo Shipbuilding will be required to cut 25 percent of its personnel costs and slash its workforce by 1,000.
Even with the new lifeline extended from creditors, Daewoo Shipbuilding may face difficulty in standing on its own feet unless it secures new orders, industry watchers said.
So far this year, the shipyard has secured $770 million worth of orders and targets to clinch orders worth as much as $5.5 billion this year.
"With the debt rescheduling and a fresh cash injection, Daewoo Shipbuilding has secured a time to stay afloat," said Lee Jae-won, an analyst at Yuanta Securities. "But it could face another round of liquidity shortage depending on the market situation."
Last year, the shipyard bagged orders worth $1.5 billion, about 10 percent of its annual order target.
"This year, new shipbuilding orders are forecast to increase, but any meaningful recovery is unlikely due to a still-unresolved supply glut and other market uncertainties," said Kim Chon-koo, an analyst at Hyundai Research Institute.
Daewoo Shipbuilding said earlier that its portfolio will be mostly made up of LNG carriers and other specialty vessels, with the company expecting a business turnaround this year.
"Starting this year, a huge chunk of our portfolio will consist of LNG ships and other vessels that we specialize in. Most of the loss-making offshore facilities projects have been completed," the company said earlier.
Daewoo Shipbuilding said as of end-February its order backlog came to 108 ships, 50 out of which are LNG-FSRU ships.
"We are going to reduce our exposure to risky offshore projects while focusing on commercial ships and specialty vessels," it said.
Daewoo Shipbuilding's President Jung also assured investors that the shipyard will be able to turn back to the black this year.
The shipbuilder suffered an operating loss of 1.61 trillion won last year following an operating loss of 2.94 trillion won in 2015.
Its net loss narrowed to 2.71 trillion won last year from a loss of 3.3 trillion won a year earlier with sales also dipping 15.1 percent on-year to reach 12.74 trillion won.
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