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NPS Calling for Partial Redemption of Corporate Bonds of DSME

DSME

The National Pension Service (NPS) of South Korea asked for discussions on selective redemption of Daewoo Shipbuilding & Marine Engineering’s (DSME) maturing corporate bonds.

The National Pension Service (NPS) of South Korea said on March 26 that discussions are required for selective redemption of Daewoo Shipbuilding & Marine Engineering’s (DSME) maturing corporate bonds. In response, major shareholders such as the Korea Development Bank (KDB) and the Financial Services Commission (FSC) remarked that it should not happen because it will result in a lawsuit filed by the other institutional investors and individual investors.

What the NPS has suggested is selective and preferred repayment of the principal and interest regarding 50% of the corporate bonds subject to no debt-equity swap. At present, more than 65% of the shipbuilder’s corporate bonds are held by pension funds such as the NPS and Korea Post and insurers and asset management firms investing in the company with their customers’ funds. Specifically, the NPS has its corporate bonds worth a total of 350 billion won (US$304 million) or so, including 193.6 billion won (US$168 million) equivalent to 44% of the bonds maturing next month.

The corporate bond holders in possession of the bonds worth 1.55 trillion won (US$1.34 billion), including the NPS, are saying that the South Korean government’s plan for the restructuring of the company is not without problems with the meeting of debenture holders scheduled for April 17 and 18. “The plan has no clause at all regarding the responsibility of major shareholders such as capital reduction,” the NPS explained, adding, “At least a part of the principal and interest maturing next month has to be repaid.” The debenture holders are planning to file a lawsuit with regard to bonds issued after the company’s accounting fraud.

Commercial banks are also opposed to the KDB’s responsibility sharing plan, claiming that it is arbitrary. They are supposed to provide two trillion won (US$1.74 billion) ahead of the state-run bank in the form of bearing of an additional portion of refund guarantee. “We agree on the necessity of support for the shipbuilder in view of national economic conditions but the amount of allotments should be determined based on objective criteria,” one of them pointed out.

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