Japan and the European Union officially raised concerns over the Korean government’s latest 2.9 trillion won ($2.5 billion) bailout plan to rescue cash-strapped Daewoo Shipbuilding & Marine Engineering at a working group meeting of the Organization for Economic Cooperation and Development in Paris, a government official said Wednesday.
The reactions from Japan and the EU came as nearly all bondholders of the world’s largest shipbuilder — including its largest bondholder, the National Pension Service — agreed to convert half of its 1.3 trillion won of debt to equity and extend maturities for the other half by three years.
The agreement allows the major creditors — Korea Development Bank, which owns a 79 percent stake in DSME, and the Export-Import Bank of Korea — to inject a fresh 2.9 trillion won loan to the shipbuilder from late April, after a court approval.
The financial lifeline is additional support following a 4.2 trillion won injection by the creditors in October 2015 to help DSME get operating funds to continue building ships that had been previously ordered.
The members of the OECD Council Working Party on Shipbuilding, or WP6, meet twice a year to discuss ways to promote fair competition in the global shipbuilding industry. This year, officials from the Trade Ministry, Exim Bank and the Korea Offshore and Shipbuilding Association were dispatched to the Paris meeting that began Tuesday.
“Particularly since 2015, Japan has been taking issue with the Korean creditor banks’ support for Daewoo Shipbuilding. Japan did the same in April and November OECD meetings last year,” said the government official at the Ministry of Trade, Industry and Energy.
The EU seems to be slightly less aggressive than Japan because European shipyards are in better shape than Japanese ones in terms of the number of orders, he said.
“Our government response was that the latest bailout decision was made by the creditors and bondholders, not the Korean government. We clarified that the decision was based on commercial judgment, not the government’s judgment, and that helping it survive would minimize the losses for all stakeholders.”
Japan claims that since the KDB and Exim Bank are state-run policy banks, their financial support is made up of subsidies from the Korean government.
However, neither Japan nor the EU mentioned the possibility of filing a complaint with the World Trade Organization at the Paris meeting, the official said, cautiously projecting that Japan may tone down its voice at the upcoming November meeting if global shipbuilding starts improving in the second half.
The EU filed a complaint with the WTO in 2002 against Korean shipyards, asserting that Exim Bank’s shipping finance was against WTO rules. In 2004, the WTO partially ruled against the EU, saying that the bank’s shipping finance was not government subsidies. However, the bank was ordered to partially correct some of its financial measures for Korean shipyards.
China, the largest shipbuilding nation in the world with over 30 percent of market share, is not a member of the OECD WP6, even though considerable support by Chinese banks for Chinese shipyards may be against WTO rules, the government official noted.
According to news reports, Japan beat Korea in shipbuilding ranking in 2016. Last year was the first time in 17 years that Korean shipbuilders had fewer ships to build than Japanese ones.
Source: The Korea Herald