South Korea to inject $2.6 bln into ailing shipyard Daewoo

March 22, 2017 - 10:15 pm

SEOUL, South Korea (AP) — South Korea announced Thursday a fresh capital injection for Daewoo Shipbuilding & Marine Engineering Co., seeking to prevent the world's second-largest shipbuilder from defaulting on its debts.

The injection of 2.9 trillion won ($2.6 billion) will prevent Daewoo from going bankrupt when some of its debt matures next month, which could have had a damaging impact on the economy, the Financial Supervisory Commission said in a statement. The latest bailout will be followed by voluntary debt restructuring among Daewoo's creditors and a further push to shut down loss-making businesses, such as offshore drilling, to keep it afloat.

It is not clear if the latest round of the government bailout would be a lifeline for Daewoo or if it would merely delay its demise. A total of 1.6 trillion won of debt will mature from April this year to April 2018 while Daewoo's capital has been running dry.

The government estimates the cost of letting South Korea's second-biggest shipyard fail at the moment would be too much for the country's fragile economy. Letting Daewoo go bankrupt now would cause ripple effects of up to 59 trillion won ($53 billion) it said, citing a study by a private accounting firm.

The fall of Daewoo Shipbuilding could result in the loss of some 50,000 jobs at Daewoo and its contractors and the waste of billions of dollars of taxpayers' money that the government has injected since the state-owned Korea Development Bank took over the shipbuilder in 2000. The shipbuilder's former parent group collapsed in the 1997-1998 Asian financial crisis.

The latest woes at Daewoo come at a delicate time for South Korean politics. South Korea is holding a snap election in May to select a president after the Constitutional Court upheld the impeachment of Park Geun-hye earlier this month, citing the influence-peddling scandal involving her secretive adviser.

The country's prime minister is now overseeing the administration until the election.

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