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.