San-eun Records Q3 Loss Amid Daewoo Shipbuilding & HMM Stock Declines

[Asia Economy Reporter Song Hwajeong] Korea Development Bank (KDB) recorded a loss in the third quarter of this year. The decline in the stock prices of Daewoo Shipbuilding & Marine Engineering (DSME) and HMM negatively impacted its performance.

According to the third-quarter status of KDB disclosed on the 9th by the Korea Federation of Banks, KDB posted a net loss of 354.1 billion KRW in the third quarter of this year, turning to a deficit. In the same period last year, it recorded a net profit of 2.8439 trillion KRW.

Interest income increased from 3.0122 trillion KRW in the third quarter of last year to 4.3807 trillion KRW this year, but non-interest income sharply declined. Non-interest income plummeted from 3.267 trillion KRW in the same period last year to 629.4 billion KRW in the third quarter of this year.

In particular, KDB recorded a significant non-operating loss in the third quarter of this year. The non-operating loss reached 1.2691 trillion KRW in the third quarter, whereas it had recorded a gain of 440.7 billion KRW in the same period last year. Impairment losses on investments in subsidiaries and affiliates accounted for most of the non-operating loss, totaling 1.268 trillion KRW. This was due to the decline in the stock prices of Daewoo Shipbuilding & Marine Engineering and HMM. DSME is a consolidated subsidiary of KDB, with KDB holding a 55.68% stake. HMM is a partially consolidated non-consolidated subsidiary, with KDB holding a 20.7% stake, making it the largest shareholder of HMM.

The stock price of DSME fell from 26,900 KRW at the end of the third quarter last year to 18,950 KRW at the end of the third quarter this year. HMM's stock price also dropped from 33,700 KRW at the end of the third quarter last year to 18,500 KRW at the end of the third quarter this year.

This is the exact opposite situation compared to the third quarter of last year. In the third quarter of last year, the rise in DSME's stock price led to a reversal of impairment losses on investments in subsidiaries and affiliates amounting to 466.7 billion KRW.

These results are expected to show a larger deficit on a consolidated basis, which includes Korea Electric Power Corporation's (KEPCO) losses on a separate basis. A KDB official explained, "The third-quarter loss was mainly caused by the decline in the stock prices of HMM and DSME," adding, "KEPCO's results are reflected in the consolidated earnings, so they are not included in the separately reported third-quarter results disclosed this time." KDB holds a 33% stake in KEPCO, and under the equity method, 33% of KEPCO's losses are recorded as KDB's losses. KEPCO has recorded an operating loss of 21 trillion KRW through the third quarter this year, and its annual loss is expected to exceed 30 trillion KRW.

The sale process of DSME is approaching the signing of the main contract, which is expected to reduce KDB's loss burden in the future. Earlier, Hanwha Group and DSME signed a conditional investment agreement (MOU) in September, including a third-party allotment rights offering worth 2 trillion KRW. Accordingly, Hanwha plans to acquire a 49.3% stake and management rights through the rights offering. Subsequently, KDB will become the second-largest shareholder with a 28.2% stake. Hanwha completed due diligence on DSME at the end of last month and is preparing to sign the main contract. At a press conference, KDB Chairman Kang Seok-hoon stated, "KDB has injected about 4.1 trillion KRW in new funds into DSME, and the current estimated loss is about 3.5 trillion KRW," adding, "If DSME is reclassified from a watchlist loan to a normal loan, most of the 1.6 trillion KRW in provisions will be reversed as gains, and if DSME becomes a competitive company through private acquisition and its stock price, currently hovering around 20,000 KRW, rises to KDB's purchase price level, a significant portion of the invested amount can be recovered."