Over the Hardest Part... The Difficult Road Ahead for Doosan

Submission of Asset Sale Self-Rescue Plan
Creditor Banks Begin Due Diligence
Results Expected Early Next Month
Funding Plan Not Easy and Differences in Opinions Remain

On the 27th, the Doosan Tower building in Dongdaemun-gu, Seoul, is visible as the government decided to inject 1.6 trillion won into Doosan Heavy Industries, which is experiencing financial difficulties, through the Korea Development Bank and the Export-Import Bank of Korea. Photo by Kang Jin-hyung aymsdream@

[Asia Economy reporters Kangwook Cho and Gimin Lee] Doosan Heavy Industries & Construction's management normalization process has overcome a hurdle with the commencement of due diligence by the creditor banks. The due diligence results are expected to be released early next month and will be used as materials for the creditor banks' restructuring plan for Doosan Heavy Industries & Construction. However, the future of Doosan Group, including Doosan Heavy Industries & Construction, remains challenging. Although Doosan Group submitted a self-help plan described as 'prepared with a bone-cutting attitude,' differences of opinion with the creditor banks persist, and the funding plan through the sale of affiliates and assets is also difficult.

According to industry and financial sources on the 14th, Doosan Group, which submitted a self-help plan containing measures to improve financial structure and plans to sell affiliates and business units, is undergoing a rigorous verification process by the creditor banks. The creditor banks, including the Korea Development Bank and the Export-Import Bank of Korea, selected Samil Accounting Corporation as the due diligence agency and started due diligence on Doosan Group and Doosan Heavy Industries & Construction. The creditor banks stated, "After comprehensively reviewing the validity and feasibility of the self-help plan submitted by Doosan Group, its compliance with restructuring principles, the creditor banks' financial support burden and repayment possibility, and the impact on national key industries, we plan to prepare a management normalization plan for Doosan Heavy Industries & Construction through consultations with Doosan Group."

Additionally, the Export-Import Bank of Korea plans to submit the agenda regarding the conversion of Doosan Heavy Industries & Construction's $500 million (approximately 600 billion KRW) foreign currency public bond loan, which matures on the 27th, to the bank's highest decision-making body, the 'Expanded Credit Committee,' soon to decide on support. The Export-Import Bank provided a payment guarantee when Doosan Heavy Industries & Construction issued this foreign currency public bond in April 2015. Since the Export-Import Bank would bear the burden if Doosan Heavy Industries & Construction fails to repay, loan conversion is likely.

Creditor banks from commercial banks are reported to have a positive stance on extending the maturity of existing loans but are reluctant to provide additional funding. The exposure of the Export-Import Bank and the Korea Development Bank to Doosan Heavy Industries & Construction is 1.4 trillion KRW and 780 billion KRW, respectively. Among commercial banks, Woori Bank has the largest exposure at 227 billion KRW, followed by SC First Bank with 170 billion KRW and NongHyup Bank with 120 billion KRW.

Doosan is expected to face imminent challenges before reaching a final agreement with the creditor banks on the self-help plan. The sale of Solus shares, which had gained the most momentum, appears to be faltering. The contract with the private equity fund (PEF) Skylake Investment, the likely buyer of Solus, reportedly fell through due to differences in sale price and other terms. Doosan Solus is a company spun off from Doosan Corporation, with Doosan Corporation and Chairman Park Jung-won's related parties holding 50.48% of common shares and 11.04% of preferred shares. The market expects the sale price for the common shares, which include management rights, to be between 600 billion and 800 billion KRW.

Unlike Solus, the industry views the sale of other business units and affiliates currently being discussed as difficult. The coal-fired power generation business, which accounts for about 70% of Doosan Heavy Industries & Construction's business, and the WATER division responsible for desalination plants and water treatment facilities within Doosan Heavy Industries & Construction are also candidates for sale. Additionally, Neotrans, the operator of the Shinbundang Line, and Doosan Mecatec, a manufacturer of industrial heating boilers and metal tanks, are mentioned. Neotrans is a 100% subsidiary of Doosan Heavy Industries & Construction, with Doosan Construction holding 42.85% as the largest shareholder. An industry insider said, "Unlike Solus, which has future business value, other business units or affiliates may face difficulties in sales," adding, "Buyers aware of Doosan's current situation are likely to demand price adjustments, so negotiations will take considerable time."

There are also forecasts that additional voluntary retirement and idle workforce furloughs, being considered to reduce fixed costs such as labor costs at Doosan Heavy Industries & Construction, will be difficult to implement in practice. Earlier this year, Doosan received voluntary retirement applications from 2,600 employees aged 45 and over but only about 650 applicants, falling short of the target. Furthermore, signs of labor-management conflict are emerging. Previously, on the 11th of last month, Doosan Heavy Industries & Construction President Jung Yeon-in sent a letter requesting labor-management consultation for the implementation of business suspension, but the union rejected it, stating "Management responsibility comes first." Recently, the union has submitted an agenda titled 'Fight to block Doosan Heavy Industries & Construction restructuring and to resume Shin Hanul Units 3 and 4' to the Metal Workers' Union Gyeongnam Branch Steering Committee, indicating signs of collective action.

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