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S. Korea pension fund agrees to bond restructuring to save shipbuilder

The Crusader container ship, built by Daewoo Shipbuilding and Marine Engineering Co., near the Kwai Tsing container terminals in Hong Kong.

Daewoo Shipbuilding & Marine Engineering Co., the world's largest shipbuilder, won a reprieve from major a bondholder, South Korea's National Pension Service, as well as other lenders to avert a payment crisis that had threatened to almost shut the company.

The 545 trillion won ($462 billion) NPS agreed to restructure 1.55 trillion won of bonds issued by the company after the shipbuilder, the Korea Development Bank and the Export-Import Bank of Korea, all took steps to ensure repayment of the debts, the pension service said in a statement Sunday. Banks agreed to convert 80% of loans to Daewoo into shares and to extend the maturity on the remainder, the Financial Services Commission said separately.

Bondholders including Korea Federation of Small & Medium Business and Korea Post also agreed on Monday's rescheduling plan. Two other meetings of bondholders are due to meet Tuesday and they are also likely to approve, analysts said. The reprieve means the vessel maker, unprofitable in each of the past four years, will get more time to make payments on bonds that are due this month.

“Immediate concerns have been resolved and this is good,” said Kim Ki-myung, a credit analyst at Korea Investment & Securities in Seoul. “Daewoo Ship will live and can get back to concentrating more on its day-to-day efforts to turn itself around rather than scrambling to meet its upcoming debt obligations.”

KDB and the Export-Import Bank of Korea said last month they would provide 2.9 trillion won in additional loans and swap about 1.6 trillion won of debt for equity if other creditors and bondholders agree to convert up to 80% of their debt and extend maturities for remaining loans by as much as five years.

Daewoo was due to meet with its bondholders Monday and Tuesday, according to regulatory filings. A failure to final approval would mean the shipbuilder will be subject to mandatory court receivership and debt restructuring near the end of the week, said Joung Young-suk, KDB's head of corporate restructuring.

Daewoo said it had 14.4 trillion won of debt and 224.3 billion won in cash and equivalents as of December. It needs to repay the NPS about 200 billion won, or 45% of bonds maturing in April, according to two people familiar with the matter. In total, the company owes NPS 390 billion won through 2019, the people said, asking not to be identified as the information isn't public. Daewoo's debt-to-equity ratio was 2,73% at the end of last year, KDB said in March.