Daewoo Shipbuilding and Marine Engineering (DSME) is seeking measures for survival, faced with risks of being delisted from the stock market due to capital erosion.

Analysts have pointed out that DSME may be kicked out of the main bourse KOSPI if it fails to escape full-scale capital erosion. The shipbuilder, which recorded a 423.6 billion won operating loss and 1.2 trillion won net loss in the second quarter, had its capital completely eroded with debts outweighing assets, as its total asset stood at 15.6 trillion won while its liability totaled 16.8 trillion won.

This means the bourse operator can delist the company, according to the listing rules. Hence, analysts have warned that DSME would inevitably be delisted from the stock market if it fails to get out of full-scale capital erosion by the end of this year.

“Timely delivery of products is a prerequisite for DSME to secure liquidity and improve profitability. Capital injection is also essential for its survival,” said Kim Hyun, an analyst at Meritz Securities. He said the company needs debt-equity swap over 1.7 trillion won to pull down the debt ratio to below 800 percent by the end of this year.

The shipbuilder and its creditors are considering recapitalization to avoid delisting. “Following the normalization plan, we are planning recapitalization within this year,” the company announced. “The details of a capital increase such as the amount and timing will be discussed with creditors.”

DSME has been suffering liquidity problems as its delivery of two drill ships for Angolan state-run oil firm Sonangol has been delayed at the request of the Angolan firm. As the delivery, which was originally set for June and July, has been delayed, DSME couldn’t get the 1 trillion won it had been waiting on. The problem is likely to be solved as DSME said in the filing that Sonangol agreed to receive the ships by Sept. 30. The shipbuilder expects the 1 trillion won will greatly ease the liquidity problem. It is also likely to start further restructuring in the second half of the year, though it already decreased its number of workers by 7 percent from a year ago.

The state-run Korea Development Bank (KDB), which is the largest shareholder and main creditor of the troubled shipbuilder, is also planning to provide a short-term loan to DSME early next month to help it overcome short-term liquidity. According to local media, the state-run bank is planning to provide a short-term loan worth between 200 billion won and 300 billion won.

The shipbuilder has faced concern that it may be forced to enter court receivership if it fails to pay back around 400 billion won in commercial papers that come due on Sept. 9. As the shipbuilder is to get 1 trillion won from Sonangol shortly after, the state-run bank saw the rationale for providing the short-term loan. While stressing that there will be no additional funding in corporate restructuring, the financial regulator had said that the policy banks can temporarily support the troubled company with additional funding if it aims at overcoming a short-term mismatch of liquidity.

Source: Korea Times