South Korea’s National Pension Service (NPS), the biggest holder of bonds issued by cash-strapped Daewoo Shipbuilding & Marine Engineering Co. (DSME), finally accepted the government-led bailout program that demanded pain-sharing from private banks and bondholders.
The country’s largest institutional investor held an investment committee meeting on Sunday and decided to convert half of its 390 billion won ($342 million) bonds into equity and push back due date for the remaining half to three years. The fund’s decision raises the chance for DSME to avoid heading for a court-led prepackaged program, which would expedite debt write-off and reorganization.
Financial regulators and DSME’s largest shareholder Korea Development Bank (KDB) suggested a new bailout scheme for the shipbuilder last month that required private bondholders including the NPS to swap their debt worth 2.9 trillion won into equity in return for a state-lenders’ fresh funding worth 2.9 trillion won to the shipbuilder.
The NPS was initially reluctant to accept the plan and demanded the KDB to provide a guarantee on half of their debt to avoid losses in the pension fund. The state lender first rejected the demand but later on Sunday promised to guarantee 100 billion won for private lenders if DSME goes under, which prompted the NPS to finally agree on the plan.
“We agreed to go along with the debt adjustment scheme for DSME on conclusion that accepting the plan would be better in protecting pension benefits for Korean people,” said the fund operator.
The NPS owns about 30 percent of 1.35 trillion won corporate bonds issued by DSME. In particular, it holds 200 billion won, or 45.45 percent, of 440 billion won bonds of DSME that are due to mature on April 21.
The full creditors’ meeting to vote on the new bailout scheme for DSME is scheduled on Monday to Tuesday.
By Chung Seok-woo and Kim Hyo-hye