Prolonged strike may hamper KDB’s move to sell off DSME

A protracted strike by subcontracted workers of Daewoo Shipbuilding & Marine Engineering (DSME) is emerging as a new stumbling block in state-run Korea Development Bank’s (KDB) efforts to find a new buyer for the loss-making shipbuilder, raising fears of additional losses and tarnished credibility.

KDB is DSME’s main creditor and largest shareholder with a 55.7 percent stake.

The strike stretched into the 49th day on Wednesday, with negotiating parties making little progress over the workers’ demand for a 30-percent increase in wages and a 300-percent increase in bonuses to cope with soaring inflation.

Speaking on condition of anonymity, a KDB official told The Korea Times, Wednesday, that the strike will not hurt the selloff plan, because it is a “short-term event,” whereas a sale is premised on the long-term valuation of a targeted company.

“The talks over selling DSME have been in progress regardless of the current circumstances,” the official said. “And we don’t think the strike will work against the selloff plan.”

Others, however, view the strike will deepen financial problems facing the company.

The strike inflicted 1 trillion won ($764.1 million) in estimated losses on DSME, after the shipbuilder logged an operating loss of 470.1 billion won in the first three months this year, up 120 percent from the same period of 2021.

The shipbuilder shifted to the red for the first time in five years in 2021, suffering an operating loss of 1.75 trillion won. Its debt-to-equity ratio stood at 523.16 percent by the end of March, up 144.12 percentage points from a year earlier.

The KDB official argued that the shipbuilder is still in “good shape” regarding cash flow. “Injecting additional taxpayers’ money will not happen,” the official said.

The state-run lender has injected trillions of won since the late 2000s to keep DSME afloat, but several attempts to sell the shipbuilder have failed.

Others disagree with the bank and rather view DSME as facing cash flow problems. They point out that “cashable” assets of the shipbuilder are worth 1.44 trillion won as of March, while it holds 2.72 trillion won in short-term loans due within the next 12 months.

“It is questionable whether DSME can withstand the aftermath of the strike when it ends,” an industry source said, adding, “The repercussions of the strike may be too huge to endure even if KDB decides to come up with extra financing.”

The strike appears to be denting the credibility of the nation’s third-largest shipbuilder that, along with other domestic rivals, rarely missed delivery deadlines.

The strike is taking place at the main dockyard on Geoje Island, South Gyeongsang Province, where three VLCCs are being built and one of them is unlikely to be completed by the deadline in the fourth quarter of this year.

VLCC is an acronym for a very large crude carrier that is more than 300 meters in length with a capacity of between 200,000 and 320,000 deadweight tons, which is large enough to carry 2 million barrels of crude oil.

Some speculate that KDB is having a tough time dealing with the strike and the selloff plan, because it is preoccupied with President Yoon Suk-yeol’s controversial pledge to move KDB’s headquarters from Seoul to Busan in the name of balanced regional development.

A KDB official downplayed the speculation, saying, “We have units that are each tasked with separate jobs of handling the selloff plan and the relocation plan.”

The bank’s latest attempt to sell DSME failed in January, when the European Union cited possible monopolistic concerns and rejected a planned takeover by Hyundai Heavy Industries, the world’s largest shipbuilder from Korea.
Source: The Korea Times