Daewoo Expected to Rise Up From Debt Rescheduling

Monday, August 20, 2001
South Korea's Daewoo Shipbuilding & Marine Engineering is set to graduate this week from a creditors' debt rescheduling plan, a move that will shore up credit ratings for the world's second-largest shipbuilder.

An early end to the plan was widely anticipated as the shipyard has shown a dramatic turnaround with a flood of new orders, creditors said on Monday.

"The company's earnings performance has improved dramatically," said Yang Moon-suk, a spokesman for Korea Development Bank, the main creditor for the shipbuilder.

"Working-level officials of creditors have already agreed that Daewoo Shipbuilding is now able to stand on its own and an announcement is due by Friday," he added.

Analysts said the graduation meant greater business opportunities for Daewoo Shipbuilding as its credit ratings were expected to be upgraded. The end of preferential treatment would not increase financial burdens for the shipbuilder much as the interest rates had fallen to record-low levels, they said.

"Daewoo now can bid for major projects from which it has been barred due to its financial weakness," said Richard Pyo, analyst at Credit Suisse First Boston.

Song Sang-hoo, an analyst at Dongwon Economic Research Institute, said: "The lifting of the workout plan will ease European Union allegations that the Korean government provides subsidies to its shipyards."

Daewoo Shipbuilding, sitting on enough orders to keep the yard busy for almost three years, earned 104.4 billion won ($81.9 million) in net profit in the first half of this year on 1.48 trillion won of sales.

A year-on-year comparison was not available because the shipbuilder, along with another unit, was spun off from Daewoo Heavy Industries last October.

Daewoo's shipyard along with 11 other Daewoo Group companies was rescued by creditors in August 1999 after the conglomerate collapsed. The company has since repaid about 480 billion won so far this year to cut down its interest-paying debts to 774 billion won, aided by the industry-wide boom.

Daewoo Shipbuilding had an edge in the liquified natural gas (LNG) carrier market as its membrane-type model has emerged as a favorite over the moss-type carrier.

The shipbuilder raked in orders for six LNG carriers in 2000 out of a total 14 orders placed worldwide. It secured orders for 10 more LNG ships in the first seven months of this year and expected to win at least 10 more for the rest of the year.

"Our share in the LNG carrier market, which expects to see about 40 orders this year, will be more than 50 percent," said Kim Do-kyun, a Daewoo Shipbuilding spokesman.

Daewoo's financial troubles in recent years forced the shipbuilder to offer concessions to win orders, including what industry experts call a "heavy-tail" payments method, in which 70 percent of the total payment is made on delivery of a ship.

Normally, payments are made in five stages of 20 percent each. Yet what started as a handicap has turned into a fortune as the Korean won has depreciated steeply.

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