Industrial Bank of Korea: "Doosan Heavy Industries, Policy-Based Financial Support Decision Inevitable"

[Asia Economy Reporter Kangwook Cho] The Korea Development Bank (KDB) announced on the 27th that the decision to provide an emergency operating fund of 1 trillion won to Doosan Heavy Industries & Construction was "an unavoidable policy financial support decision."

On the same day, Choi Dae-hyun, Vice President of KDB's Corporate Finance Division, held an online briefing regarding liquidity support for Doosan Heavy Industries & Construction and explained the background of the financial support, stating, "In the unprecedented liquidity crunch caused by the global spread of COVID-19, we had no choice but to consider the impact on the power generation industry, a key industry operated by Doosan Heavy Industries & Construction, the socio-economic adverse effects due to large-scale unemployment, the blow to the regional economy, and concerns about a chain reaction of insolvencies among other companies due to financial market turmoil."

Initially, creditor banks planned to consider support after reviewing Doosan Heavy Industries & Construction’s self-help measures. Already, Eun Sung-soo, Chairman of the Financial Services Commission, stated on the 24th that "there must be self-help efforts that the public can accept" as a prerequisite for financial support to large corporations.

Doosan Heavy Industries & Construction’s financial structure had been deteriorating due to poor performance in the power plant equipment business and continued losses from its subsidiary, Doosan Construction.

Accordingly, the Doosan Group has been reviewing various measures to improve its financial structure since the beginning of the year and managed liquidity through short-term funding such as commercial paper. However, due to the recent financial market freeze caused by the COVID-19 crisis, refinancing and new short-term funding were halted, leading to a liquidity shortage and prompting an urgent request for financial support from KDB and the Export-Import Bank of Korea.

Creditor banks reportedly insisted that high-intensity self-help measures at the Doosan Group level, not just Doosan Heavy Industries & Construction, were necessary. Plans to sell affiliates such as Doosan Infracore and Doosan Bobcat, in addition to pledging stocks and real estate as collateral, should be included in the self-help measures to persuade the credit committee. Banks are also concerned about potential issues such as preferential treatment or breach of fiduciary duty following soundness concerns. The main creditor bank for Doosan Corporation is Woori Bank, while KDB is the main creditor bank for Doosan Heavy Industries & Construction.

However, KDB explained that the emergency funding was provided without a comprehensive evaluation based on detailed due diligence because the situation was so severe that a policy financial support decision was unavoidable.

That said, KDB emphasized that the emergency operating fund of 1 trillion won, provided as a credit line, is premised on shared pain among affiliates, major shareholders (Doosan Corporation), employees, and creditor banks, given the liquidity shortage caused by the financial market freeze due to the COVID-19 crisis.

KDB stated that this support is based on the previously established restructuring principles, which require stakeholders to share the pain. In particular, affiliates and major shareholders must take responsibility first, and the parent company Doosan, employees, and other creditor financial institutions must also share the pain equitably.

It is understood that Doosan provided shares of the major shareholder Doosan Corporation, as well as shares of related companies with value such as Doosan Solus, and shares held by the Doosan owner family as collateral.

Vice President Choi said, "This liquidity support fundamentally aims to restore the market funding function that has been frozen. Since the policy authorities and creditor groups have shown their willingness to support, I ask the financial market participants to facilitate smooth funding for the company so that it can normalize early."

This content was produced with the assistance of AI translation services.