By Nam Hyun-woo
Questions have risen over the government's stance on support for Daewoo Shipbuilding & Marine Engineering (DSME), as the Financial Services Commission (FSC) has started denying it designed the bailout plan.
The cash-strapped shipbuilder is likely to escape its liquidity crisis, as corporate bondholders agreed this week to a debt rescheduling program in which they will get a debt-for-equity swap for half of their bonds and will roll over the repayment of the other half for three years.
Under the bailout plan, the Korea Development Bank (KDB) and the Export-Import Bank of Korea (Eximbank) said they would provide a fresh 2.9 trillion won ($2.55 billion) loan if bondholders agreed to the debt rescheduling plan the former asked for.
Bondholders and creditor banks agreed to the plan. Commercial paper holders are yet to confirm their agreement but FSC Chairman Yim Jong-yong said the government expects they will do so.
While exerting these efforts, the FSC has been striving to minimize its fingerprints on the bailout plan -- or at least trying to make overseas observers believe they are. During the process of persuading bondholders, the FSC made KDB, a state-owned bank, take the driver's seat.
This is because a government-led bailout of DSME could be taken to the World Trade Organization (WTO) or the Organization for Economic Cooperation and Development (OECD) in a formal complaint.
According to sources close to the matter, Wednesday, some overseas experts are already regarding KDB's support of DSME as a state-led bailout. The sources said the government will send a delegation to the OECD Council Working Party on Shipbuilding if countries including Japan and Germany claim the previous support given to DSME in 2015 by the KDB and Eximbank is problematic.
In 2015, the two state-run banks channeled 4.5 trillion won into the ailing shipbuilder. Back then, the countries claimed that this was a violation of WTO regulations on governments subsidizing industries.
The government claimed that the support was made based on a “business judgment” so it was not a subsidy -- which many struggled to understand.
This time around, the government is saying, “The KDB took the leading role in the debt rescheduling.”
However, this reasoning seems to lack rational grounds. During the past several years, FSC Chairman Yim has spent a lot of time and energy maintaining that keeping DSME afloat is necessary.
When announcing the fresh bailout last month, Yim said he “should be the one held responsible if someone has to take the responsibility of not keeping the promise of no more support for DSME made in 2015.”
Other “circumstantial evidence” showing that the FSC spearheaded the DSME bailout talks is about the estimated economic damage from DSME's bankruptcy.
The FSC said that DSME's bankruptcy will likely incur economic damages worth 59 trillion won, while the Ministry of Trade, Industry and Energy estimated that the amount would be 17 trillion won. In the end, an economy-related ministers' meeting adopted the FSC's claim.
A day before announcing the plan, the FSC convened the editors of major news outlets here so that Yim could explain the details of the rescue plan. During the meeting, Yim said: “This would be my graduation work.” After the presidential election slated for May 9, Yim is highly likely to step down as the new president would appoint new cabinet members.
KDB Chairman Lee Dong-geol announced the plan at its headquarters, but KDB officials asked the FSC when they should give the announcement.
Bondholders also believe the government is behind the plans.
“There is no option but to follow the National Pension Service (NPS),” said a source close to them. “If the NPS, the largest bondholder, opposes the plans, smaller bondholders could follow under its shadow. However, if the NPS agrees and one of the smaller bondholders opposes, the firm could be fingered as someone to watch by the authorities.”
The question is about how the government will cope with the trade issues smoothly and how to place the shipbuilder back on track. Denying it designed the plan may not be a viable tactic.