Doosan Heavy Industries Faces Financial Crisis with 1 Trillion Won Emergency Funding... Creditor Banks Call for Group's High-Intensity Self-Rescue Measures

[Asia Economy Reporter Kangwook Cho] The state-run Korea Development Bank and Export-Import Bank of Korea have stepped in with an emergency capital injection of approximately 1 trillion won to Doosan Heavy Industries & Construction, which is suffering from severe financial difficulties. The two banks plan to hold a credit approval committee meeting as early as today to address the support measures for Doosan Heavy Industries & Construction.

According to financial sources on the 27th, during the 'Ministerial Meeting on Strengthening Industrial Competitiveness (Sangyeongjang)' held this morning, it was decided to provide financial support to Doosan Heavy Industries & Construction, which has been working to improve its financial structure due to deteriorating management. Accordingly, the Korea Development Bank and Export-Import Bank of Korea are expected to convene their credit approval committees as early as today to process the support measures for Doosan Heavy Industries & Construction.

The issue lies in the recoverability of the funds. Without confidence that the money can be recovered, indiscriminate support could lead to losses for which the banks would have to bear full responsibility. Doosan Heavy Industries & Construction has implemented high-intensity restructuring measures, including offering voluntary retirement to employees aged 40 and above due to sluggish orders, but has not achieved satisfactory results. Therefore, state-run banks such as the Export-Import Bank and Korea Development Bank plan to consider support only after reviewing Doosan Heavy Industries & Construction’s self-help measures. Already, on the 24th, Eun Sung-soo, Chairman of the Financial Services Commission, stated that a prerequisite for financial support to large corporations is "self-help efforts that the public can accept."

The creditor banks hold the view that high-intensity self-help measures should be implemented at the Doosan Group level, not just by Doosan Heavy Industries & Construction. Plans to sell affiliates such as Doosan Infracore and Doosan Bobcat, in addition to stock and real estate collateral, must be included in the self-help measures to persuade the credit committees. Banks are also concerned about potential issues such as preferential treatment or breach of fiduciary duty, beyond just soundness problems. The main creditor bank for Doosan Corporation is Woori Bank, while the main creditor bank for Doosan Heavy Industries & Construction is the Korea Development Bank.

The reason creditor banks are considering group-wide restructuring is the concern that Doosan Heavy Industries & Construction’s insolvency could threaten its parent company, Doosan Corporation, and its affiliates. State-run banks have also expressed the opinion that the Doosan Group itself should directly review the self-help measures for Doosan Heavy Industries & Construction. Within the financial sector, there is a consensus that even if the state-run banks provide an emergency fund of 1 trillion won, it is far from sufficient to normalize the current management situation of Doosan Heavy Industries & Construction. The total credit (loans and guarantees) extended to Doosan Heavy Industries & Construction by major banks already exceeds 3 trillion won. This includes 1.9 trillion won from the Export-Import Bank, 620 billion won from the Korea Development Bank, 440 billion won from Woori Bank, 220 billion won from Hana Bank, 210 billion won from NongHyup Bank, and 70 billion won from Kookmin Bank. In addition, foreign banks, secondary financial institutions, and securities firms are also supporting Doosan Heavy Industries & Construction.

A representative from one creditor bank said, "The 1 trillion won support from the state-run banks this time is an emergency fund that is not even enough to cover the corporate bonds maturing within the year, essentially a 'stopgap' measure. This is not just a problem of Doosan Heavy Industries & Construction but involves the entire Doosan Group affiliates. Only when a high-intensity restructuring plan is presented at the group level will commercial banks be able to provide loans."

In particular, there are concerns that the problem is not a decline in profitability but a deterioration in asset soundness when providing loan support. Critics warn that indiscriminate support as demanded by the government could increase non-performing assets and deepen the banks’ crisis.

Another creditor bank official said, "If the real economy crisis spreads to the financial sector, it could lead to a financial crisis. The financial sector is currently pouring funds into various recovery funds such as the Corporate Restructuring Fund and the Stock Market Stabilization Fund, but it cannot help but worry about the deterioration of asset soundness."