* Bailout conditional on creditors agreeing to debt-equity
swap, grace period
* Without bailout, Daewoo could go bankrupt in
* Daewoo bankruptcy would hit S.Korea economy by 48.4
trillion won economic damage-regulator
By Joyce Lee
SEOUL, March 23 State banks will extend South
Korea's foundering Daewoo Shipbuilding & Marine Engineering Co
Ltd a new 2.9 trillion won ($2.6 billion) bailout,
but only if bondholders and other creditors agree to swingeing
debt-equity swaps, the country's financial regulator said on
The Financial Services Commission (FSC) said Daewoo
Shipbuilding was not expected to be able to redeem 940 billion
won in corporate bonds maturing this year - starting with 440
billion won due in April - without a new infusion of funds.
Daewoo Shipbuilding's financials have deteriorated rapidly
since 2015 because of losses from delays and difficulties in
building complex offshore facilities. It reported a record net
loss of 3.3 trillion won in 2015.
Additional delays in the delivery of a drillship due to low
oil prices bogging down negotiations, and the shipbuilder
winning far fewer orders in 2016 than expected, have reduced
liquidity to critical levels, the FSC said.
"A liquidity crunch is expected in April, and without
additional measures Daewoo Shipbuilding will not be able to meet
its obligations and bankruptcy cannot be avoided," the FSC said
in a statement.
In the event of a bankruptcy about 50,000 people would be
expected to lose their jobs and about 1,300 sub-contractors
could also go under.
Additionally, Daewoo's creditor banks would be liable for
massive refund guarantees of pre-paid construction fees and
would have to set aside bad-loan provisions of up to 14 trillion
won, the FSC added.
The regulator estimated that the South Korean economy would
take a 48.4 trillion won hit if Daewoo Shipbuilding were to go
bankrupt this year.
The FSC's plan requires corporate bondholders, which hold
about 1.5 trillion won of Daewoo debt, to agree to a 50 percent
debt-to-equity swap and a 3-year repayment grace period on the
remaining 50 percent.
South Korean non-state-owned creditor banks, which hold
about 700 billion in unsecured loans, must agree to a 80 percent
debt-to-equity swap and a 5-year grace period on the remaining
Daewoo's two largest state creditors, Korea Development Bank
and the Export-Import Bank of Korea, will also accept a
debt-to-equity swap of 1.6 trillion won on their unsecured
This is separate from the 2.9 trillion won the two banks
will inject into Daewoo if all stakeholders agree to the plan.
Trading in Daewoo shares is currently halted.
South Korea's top three shipbuilders, including Daewoo
Shipbuilding, submitted plans last year to sell up to 4.8
trillion won in combined assets and find 3.6 trillion won
through cost cuts as part of government-led efforts to
restructure the industry.
($1 = 1,116.3500 won)
(Reporting by Joyce Lee; Editing by Eric Meijer)