Shown above is the shipyard of the DSME in southern Korea. The company faces a strike of subcontractors, which continues for over 50 days. Photo courtesy of DSME

KDB chief vows to stop financial support

Daewoo Shipbuilding and Marine Engineering (DSME) is feared to go bankrupt as its owner Korea Development Bank (KDB) threatens to stop its support amid the prolonged strike.

Subcontractors have been on strike for longer than 50 days at the DSME shipyard, causing financial losses to the money-losing South Korean shipbuilder.

KDB Chairman Kang Seog-hoon made the remarks this week to multiple media outlets. The bank holds 55.7 percent of the languishing company.

“In case this situation continues, I am concerned that DSME will not be able to pay its debts and interests,” said Kang, who took charge of the state-run lender last month.

“In this climate, we cannot additionally spend even a cent to underpin the company. We will work on special measures.”

Asked what the “special measures” means, Kang noted, “(The KDB) can consider the bankruptcy of the DSME through due procedures.”

Since 2000, the government has channeled 11.8 trillion won ($9 billion) into DSME to make the sinking shipbuilder stay afloat.

Still, the company continued to struggle as its accumulated loss amounted to 7.7 trillion won ($5.9 billion) during the past 10 years. During the first quarter of this year, it also lost money.

Against this backdrop, there lingered suspicions about whether the country has to funnel more taxpayers’ money into DSME, of which debt ratio is higher than 500 percent.

Strife of subcontractors

And things deteriorated after the strike of DSME subcontractors started on June 2, asking for up to a 30 percent increase in salary and a substantial rise in annual bonus.

Three weeks later, they occupied the biggest DSME shipyard causing losses of up to 700 billion won ($530 million), according to the DSME.

“I don’t think that the KDB really watch the DSME go under, and tens of thousands of workers lose their jobs. KDB Chairman Kang appears to urge to immediately stop the strike,” Prof. Lee Phil-sang at Seoul National University said.

“The DSME has lots of debts to pay in the near future. Even if the strike finishes, the company will have to come up with ways to turn around under consultation with the KDB.”

As of the end of this March, the DSME held 1.44 trillion won ($1.1 billion) in cash or cash equivalents. But it has to reimburse 2.73 trillion won ($2.1 billion) of debts over the next 12 months.

From the perspective of KDB, it had a chance to dispose of the money-losing DSME as the world’s largest shipbuilder Hyundai Heavy Industries (HHI) opted to purchase it in early 2019.

However, the deal fell apart early this year when the European Commission prohibited HHI’s acquisition of DSME due to worries about market dominance.

“The combined entity would have been by far the largest player in the world, in an already concentrated market. The parties’ combined market shares would be of at least 60%, which in itself is an indicator of a dominant position in the market,” the EC said at the time.