Irresponsible self-rescue plans from shipbuilding, shipping firms

Creditors that are coordinating industrial restructuring have started review of self-rescue plans that were submitted between May 12 and May 20 by the three shipping majors namely, Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries, and Samsung Heavy Industries. The plan submitted by Daewoo, which has a debt ratio of 7,308 percent as of the end of last year, includes reduction of its organization, pay cut and asset sell-offs. Hyundai submitted a self-rescue plan that calls for a triple digit job cut among others, while Samsung submitted a plan to improve its financial structure. Hyundai and Samsung have debt ratios of about 200 percent to 300 percent, and manage relatively better financial structures, but are under pressure to join early restructuring of industrial structure that has reached limitations in growth. The nation’s top two shipping companies, Hyundai Merchant Marine and Hanjin Shipping, will see their fate determined by the outcome of negotiations to cut the rental costs of vessels that they rented from overseas ship-owners.

The creditors say they will determine whether to provide financial assistance or not after examining the self-rescue plans, but it is doubtful whether they are properly verifying the plans. Daewoo submitted self-rescue plans whenever it incurred losses since 1989, and received billions of dollars through debt rollovers, debt-to-equity swaps, and new loans. However, the shipbuilder incurred another 5.5 trillion won (4.64 billion U.S. dollars) in losses last year. Sungdong Shipbuilding & Marine Engineering cut only about 3 billion won (2.53 million dollars) in labor costs, but pocketed more than 2 trillion won (1.69 billion dollars) in financial aid, but there is no sign of the company’s revival in sight yet. Self-rescue plans for respective firms are confidential to outsiders. We wonder whether state-run banks are to inject additional taxpayers’ money by using the rhetoric of "bone-carving self-rescue measures" after lending more than 21 trillion won (17.7 billion dollars) to shipbuilding and shipping companies. Hyundai Merchant Marine and Hanjin Shipping sold off their specialty carrier business, and exclusive terminals, which were "cash cow." These are not self-rescue measures but merely pain relievers. With this kind of sloppy measures, they will hardly be able to compete with global shipping firms on the international stage.

Leaderships of the ruling Saenuri Party and the Minjoo Party of Korea, including Saenuri floor leader Chung Jin-seok and Minjoo emergency committee chairman Kim Jong-in, raced each other to visit Daewoo in Geoje, South Gyeongsang Province on Sunday. “If corporate management ends in failure, people who were in charge of management should naturally take responsibility in line with market principle,” Kim said. He attempted to hold former Daewoo CEOs and Korea Development Bank, its majority stakeholder, accountable for the fiasco. However, some critics say that he gave justification to Daewoo’s labor union, which has rejected to sacrifice and is resorting to labor strikes. Self-rescue measures by indebted companies require consent from the labor union, and his message is feared to backpedal corporate restructuring.

The government has wasted golden time for restructuring while spending too much time and efforts discussing how to raise funds to finance restructuring. Now, the government should speed up developing a blueprint for corporate restructuring to determine firms that will survive and those that should be liquidated. If there are any firms that should be exited without fail, the government should make a bold decision to liquidate them, irrespective of the self-rescue measure. This is the right course of action to restructure improperly-run companies.