Credit crunch hits Korean yard

C& Heavy Industries, the shipbuilding arm of the struggling C& Group in Korea, is expected to ask Woori Bank and other creditors to place it under a workout program this week in a bid to stay afloat amid the deepening credit squeeze and a global economic downturn. If creditors accept its request, the shipbuilder will undergo drastic restructuring in return for the extension of loan maturities and an injection of fresh capital. The main creditor, Woori Bank, recently demanded that C& Heavy Industries submit a self-rescue plan, after the company had failed to pay back maturing loans for the past two months.

“We received the self-restructuring scheme from the shipbuilder. We are currently studying the feasibility of the plan. If the company files for a workout program, we will hold a meeting with other creditors and decide what to do,” a Woori Bank official said.

Industry experts expect C& Heavy Industries to apply for the restructuring program Wednesday, when C& Group holds a bidding for its ailing construction arm, Woobang Engineering, in an attempt to sell the builder at a higher price. If 75%of creditors approve the plan, the shipbuilder will have its debts rescheduled or receive new loans. But in return, the company will be required to sell assets and take a range of self-rescue measures, along with a management reshuffle.

The Woori official said even if C& Heavy Industries enters the workout program, creditors will not likely provide fresh loans, adding it may not be easy for over 10 creditors to reach a consensus on the issue because of differing opinions. “If the firm does not accept our terms for restructuring and does not file for the workout program, we will seize its properties and sell them through a public auction in accordance with the law to recover loans,” he said.

Once-booming small-and medium-sized shipbuilders have been suffering from cash flow problems in recent months in the wake of global financial market turmoil. Additionally, increasing steel and other raw material prices have begun hitting shipbuilders hard, particularly small ones, while shipping companies have reduced new orders and cancelled existing ones as business slows on the worldwide economic downturn.

C& Group has been grappling with the liquidity shortage since October, as it borrowed excessively over the years to expand its business into a number of sectors, including shipbuilding and construction.