Timely restructuring needed

The government has decided to implement corporate restructuring in the so-called “three tracks” – cyclical sectors, conglomerates and oversupply sectors – at the meeting of the industry and corporate restructuring council chaired by Yim Jong-yong, chairman of the Financial Services Commission on Tuesday. While it will provide guidance to the shipbuilding and shipping industries, a group of creditors including Korea Development Bank (KDB) will perform restructuring in individual companies. The steel and petrochemical sectors will realign their businesses through capacity reductions and M&As. Government-run banks such as KDB and Korea Eximbank will raise capital to finance restructuring costs.

Hyundai Merchant Marine and Hanjin Shipping, two cash-strapped shipping companies, said they would seek an approval of their self-rescue measures from creditors and if they are insufficient, they could file for a court receivership. Nonetheless, both can hardly be saved. Three big shipbuilders – Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries and Samsung Heavy Industries -- are asked to provide an additional self-rescue plans including additional staff cuts and the overhaul of their payroll structure in October last year. But what if they are not sufficient? Daewoo Shipbuilding & Marine Engineering's additional cut of 2,300 staff was a part of the conditions proposed when it received emergency funding of 4.2 trillion won (3.65 billion U.S. dollars). It was not prudential for the Financial Services Commission to announce that it would not seek a merger or a big deal for the two shipping companies and the three shipbuilding companies, which have combined debts of 78 trillion won (67.8 billion dollars). There is uncertainty as the government suggested only the principles and direction without detailed methodologies and timelines.

Above all, the government failed to restructure failing companies proactively only to increase losses. In June and August last year, FSC Chairman Yim and Financial Supervisory Service Governor Zhin Woong-seob said, “One should not take away an umbrella from its customer when it rains.” If the government fails to restructure the companies and provides funds only, they will end up as a “money hole.”

Corporate restructuring is painful in the short term due to a massive unemployment but a delayed restructuring would pose a greater challenge. Although a government plan is needed for unemployment, it should not hamper restructuring efforts. Majority shareholders and labor unions who receive taxpayers’ money should be held accountable and share the pain. If restructuring fails or misses the right timing, foreign investors would have more doubts about Korea’s willingness to restructure the industries, which could lead to another financial crisis. A meaningful restructuring should be made.