A South Korean pension fund on Monday accepted a debt-to-equity swap proposal for bondholders of troubled Daewoo Shipbuilding & Marine Engineering, greenlighting the country’s latest plan to bail out the world’s largest shipbuilder.
The National Pension Service (NPS), the world’s third-largest pension fund, said in a statement early on Monday that “accepting the debt restructuring will be more advantageous to improve the fund’s returns.”
NPS is Daewoo’s single-largest bondholder, with about 390 billion won ($343.5 million) in bonds, Yonhap reported.
The South Korean government suggested in March that bondholders, which hold about 1.5 trillion won of Daewoo debt, agree to a 50 percent debt-to-equity swap and a three-year grace period on the remaining, as a condition for state banks to provide a fresh $2.6 billion bailout to save the shipbuilder.
After marathon negotiations between NPS and the state-run Korea Development Bank and Export-Import Bank of Korea, last-minute concessions by the state banks including putting bond payments into an escrow account before maturity and effectively pledging to pay bondholders before their own claims to Daewoo, led to NPS’ approval.
Enough remaining bondholders still need to approve the debt-to-equity swap in the series of bondholder meetings to be held on Monday and Tuesday, but other large bondholders includingKorea Post are expected to follow NPS’ lead to approve the proposal, creditor bank officials said on Sunday.
The officials declined to be identified because of the sensitivity of the matter.
With this development, South Korea is closer to its goal of bailing out Daewoo Shipbuilding, with an estimated 50,000 jobs at risk and an economic hit of tens of billions of dollars if it should topple.
The government plans to sell Daewoo after reducing its size to about 7 trillion won in two years from about 13 trillion won in revenue last year, KDB Chairman Lee Dong-geol told reporters on Sunday.
Already bailed out in the aftermath of the Asian financial crisis of the late 1990s and supported again in 2015, Daewoo’s financials have deteriorated rapidly since then partly because of low oil prices causing delays in payments for complex offshore facilities. It reported a record net loss of 3.3 trillion won in 2015.