Main creditor bank mulls capital hike for ailing shipyard

The main creditor bank of Daewoo Shipbuilding & Marine Engineering Co. is considering a capital increase for the ailing shipyard in an effort to put it back on track, sources said Sunday.

The move came days after Daewoo Shipbuilding & Marine Engineering posted a record operating loss of 3.03 trillion won (US$2.58 billion) in the second quarter, a sharp turnaround from a 103 billion won operating income a year earlier.

The shipyard chalked up the massive loss largely to increased costs stemming from a delay in the construction of low-priced ships and offshore facilities.

According to the sources, the state-run Korea Development Bank (KDB) is pushing for a capital increase of at least 1 trillion won for Daewoo Shipbuilding and Marine Engineering as part of efforts to normalize the loss-making shipyard.

There are fears that the shipyard's record second-quarter operating loss could sharply raise its debt-to-equity ratio, prompting bondholders to seek repayment. Increased demand for debt repayment is feared to raise the possibility of the shipbuilder defaulting on its debt, according to the sources.

Market watchers predict Daewoo Shipbuilding and Marine Engineering's debt ratio, which currently hovers above 300 percent, to rise above 700 percent should the second-quarter loss be booked on its balance sheet.

KDB is awaiting the results of an audit into the shipbuilder's financial status to decide how much money is needed to prevent the company from falling into a liquidity crisis.