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KDB faces criticisms for poor restructuring strategies in shipbuilders

Korea Development Bank (KDB) faces criticisms for its poor strategies in restructuring shipbuilders as the state-run lender expands financial aid to them with no long-term planning, analysts said.

Critics said KDB abuses taxpayers’ money by injecting funds worth a few trillion won into debt-ridden shipbuilders showing no signs of rebounding. The government-controlled bank should push for stronger restructuring of the companies, helping them slim down their fat organizations and workforces, according to economists and market watchers.

“State-run lenders have failed to lead corporate restructuring effectively for the last few years,” wrote Nam Chang-woo and Jeong Dae-hee, researchers at Korea Development Institute (KDI), in a report.

“They distributed financial assets ineffectively by suspending a workout process for debt-ridden companies and expanding financial aid to them.”

In addition, Nam and Jeong pointed out that the companies under the control of state-run lenders had been passive in selling their assets and cutting workforces.

Such criticisms came amid KDB’s decision Friday to expand its support for STX Offshore & Shipbuilding by 450 billion won ($385 million) along with other creditors. The creditors had provided over 4 trillion won to the shipyard, but it is still reeling from losses.

Local lenders’ exposure to the midsize shipbuilder stood at 4.29 trillion won in September. Among them, KDB extended the largest amount of loans, totaling 1.89 trillion won.

STX Shipbuilding has been under the control of its creditors since 2013, in line with a protracted slump in the shipbuilding sector. Last year, the shipyard suffered operating losses of 314 billion won.

In return for additional financial aid, STX Offshore’s business portfolio will be reorganized to focus on tanker ships and small-sized LNG carriers, according to KDB. STX Offshore will also slim down its workforce by 930 by the end of next year, and the wages of all of its employees will be cut by 10 percent, the lender said.

But, market watcher said that these measures are insufficient to resolve the company’s complicated problems. They said the lender seeks to revive the debt-ridden company, even though it is also in danger of hurting its own financial soundness. The bank posted a net profit of 21 billion won in the third quarter, far lower than a year ago when it logged 397.9 billion won.

The case of Daewoo Shipbuilding & Marine Engineering (DSME) is even worse. In October, KDB promised to inject 4.2 trillion won into DSME, along with fellow state-run Export-Import Bank of Korea (Korea Eximbank), to keep afloat the shipbuilder which posted more than 5 trillion won in losses in the first three quarters of this year.

DSME is suspected of committing accounting fraud by hiding at least 3 trillion won of losses intentionally over the last few years. KDB is directly responsible for the company’s losses and accounting fraud suspicions because the lender is the largest shareholder of DSME, having more than a 30 percent stake.

KDB wrapped up its three-month due diligence on DSME over the suspected accounting fraud in October, and reported the results to the financial regulator. But, the Financial Supervisor Service has been reluctant to investigate DSME and its accounting auditor Deloitte Anjin over the allegation, neglecting its duties of enforcing accounting regulations and probing suspected cases as “the prosecutor of the financial industry.”

Industry sources said that Hong’s academic background helped him grab the seat, though he had no specialty in the banking business. Hong studied economics at Sogang University, the alma mater of President Park Geun-hye who studied electronics engineering at the Jesuit school.

Graduates from Sogang have taken key spots in state-run lenders under the Park administration. Korea Eximbank CEO Lee Duk-hoon studied economics in university while Woori Bank CEO Lee Kwang-goo majored in business administration at the school. The government owns a controlling stake in Woori through the state-run Korea Deposit Insurance Corp.
Source: The Korea Times

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