Future of STX remains in doubt; W3 tril. liquidity injection plan fails to restore confidence

2013-07-17 16:55

Future of STX remains in doubt

W3 tril. liquidity injection plan fails to restore confidence
By Kim Rahn

Concerns are growing over a plan by creditors to inject 3 trillion won into cash-strapped STX Offshore & Shipbuilding because it is uncertain whether the shipbuilder will recover, even with the fresh liquidity.
Experts say the company’s full recovery depends on unforeseeable economic factors. Even creditors have raised concerns over whether the shipbuilding firm will recover and become profitable again because the sluggish shipbuilding and shipping industry are unlikely to improve soon.“Countries such as China, Brazil and Russia tend to build their own ships and use their own ships in trades. Their shipbuilding skills have become high, so STX Offshore & Shipbuilding might not have a competitive edge against such competitors in near future. It may have a negative impact on the company’s full recovery,” said an official at one of the creditor banks on condition of anonymity.
“If we inject money, we have to collect it. But there is no guarantee on whether the company will be able to pay it back,” he said, adding that his bank is reviewing the rescue proposal.
Lingering uncertainties
Korea Capital Market Institute researcher Lee Seong-bok also said it is difficult to predict the company’s future.
“Construction, shipbuilding and shipping industries are susceptible to economy and liquidity,” he said. “It is not easy to decide whether to help companies recover or to liquidate them, just like it is not easy to forecast whether the economy will improve or not. Some say the shipping industry is improving while others say it is not.”
Lee said the company’s credit problem could be expanded to the financial sector because banks will have to raise a huge amount of reserve funds for bad debts not only for STX but also for other cash-strapped constructors and shipbuilders.
He also pointed out STX’s moral hazard, saying the group and the shipbuilding affiliate should have taken their own self-rescue measures including restructuring since the global financial crisis began in 2008.
“I’m not sure how willingly and actively the executives will improve their organization and management system. They seem to believe policymakers will help the group as the main creditor is the state-run Korea Development Bank (KDB),” he said.
KDB, the main creditor, said Tuesday that it has drawn up the final rescue plan for the company and asked other seven creditor banks to agree on the proposal for the money pumping into the shipbuilding affiliate of STX Group, the nation’s 13th-largest conglomerate.
Along with the fresh liquidity of 1.8 trillion won and other financial support worth 300 billion won to be supplied by the end of next year, the total amount of liquidity will be around 3 trillion won given that they have already offered 850 billion won.
The rescue plan came after Deloitte Anjin, a local accounting service firm responsible for the STX case, said earlier this month that STX Offshore & Shipbuilding’s continuing value is 2.2 trillion won and its liquidation value, 1.2 trillion won ― meaning it is more desirable to recover the shipbuilder than to liquidate it.
“I believe that the accounting firm has drawn the assessment after considering all factors such as the outlook of the company’s future business. For now, rescuing the firm is the best choice,” said a KDB official.
The seven creditors will review the proposal before deciding whether to agree it. They are supposed to give the answer to KDB by next Tuesday. The seven banks are: Export-Import Bank of Korea, NH Bank, the Korea Finance Corp., Woori Bank, Korea Exchange Bank, Shinhan Bank and the Korea Trade Insurance Corp.
The scheme will be confirmed if creditors holding a combined 75 percent of the company’s total debt agree to it.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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