A discord between Korean and Chinese creditors over the fate of STX Dalian may develop into a political dispute between the two countries

2013-09-17 16:17

Korea, China at odds over STX

By Choi Kyong-ae
A discord between Korean and Chinese creditors over the fate of STX Dalian may develop into a political dispute between the two countries. Chinese creditors have asked their Korean counterparts to share the financial burden of putting the moribund shipyard back to normal but Korean banks called the request a “tall order” as their exposure to the shipyard is very small compared to Chinese banks, according STX officials, Tuesday.“If Chinese creditors stick to their demands with the backing of the (Chinese) government, efforts to sell the shipyard will go nowhere,” Park Han-kyu, a spokesman for STX Offshore & Shipbuilding, told The Korea Times by telephone.
He said the deepening rift between the creditors may take a turn for the worse, resulting in a dispute between the two governments over the STX Dalian issue.
Backing his concerns, Chinese Premier Li Keqiang purportedly paid a visit to Changxingdao, home to STX Dalian, during the Davos Summit held from Sept. 12-13 in Dalian.
“Chances are high Lee may have been briefed by Dalian city officials on recent developments in STX Dalian” as he played a key role in attracting the shipyard investment back in 2005, Park said.
As Korean banks’ exposure to STX Dalian is only 10 percent, it is Chinese creditors who should take the initiative in reviving the shipyard, an official of the state-run Korea Development Bank (KDB) said. He said the remaining 90 percent belongs to Chinese creditors.
“Talks are underway to narrow the differences between the two sides,” he said.
Local media reported early this week that Chinese creditors led by Industrial and Commercial Bank of China asked KDB and other Korean creditors to among other things, fully pay the overdue wages of 20,000 Chinese workers at STX Dalian; to make a payment guarantee for a fresh capital injection by Chinese banks into the shipyard; and to hand over the primary security right for the yard to them.
Chinese creditors made the requests last month when Korean creditors flew to Dalian for an urgent meeting convened by their Chinese counterparts.
KDB confirmed the visit. But neither KDB nor STX Offshore officially confirmed whether they have received the requests from China. KDB is the main Korean creditor of STX Dalian and STX Offshore owns a 52 percent stake in STX Dalian.
Under the charismatic leadership of Chairman Kang Duk-soo, STX Group, a Korean shipping-to-shipbuilding conglomerate, invested $1.63 billion to complete a shipyard in Dalian in 2008. Back then, Lee’s urgent need to attract foreign investment to strengthen his stance within the Chinese Communist Party seemed to have coincided with Kang’s ambitions to expand into overseas markets, a local report says.
Last week, Kang was forced by the STX Offshore’s board to step down as chairman of the ill-fated group to take personal responsibility for the group’s current woes.
STX Dalian, once a role model for companies going abroad, has become a major headache for the STX Group in the past four years since 2009 when the marine-transport business was hit hardest by the financial crisis. STX Dalian has not paid wages to its workers since March when it stopped operations. The company currently owes a combined $1.37 billion to Korean and Chinese creditors.
A combination of a sharp decline in vessel orders, the stalled recovery of the industry, oversupply of ships due to an increased production at Chinese shipyards, higher fuel costs, and lower freight rates drove all worked together to bloat its debt and squeezed margins at STX affiliates.
The decline in the shipping and shipbuilding industries since the crisis has hit STX Group particularly hard. About 90 percent of the group’s sales come from those businesses. Its other main business, construction, has also been hit by the global economic downturn.
STX Group, with more than 10 trillion won, or $9 billion, in total debt, sold 1.13 trillion won in assets as of June 9 as part of a 2.5 trillion won asset sale plan announced in May of last year.