Departing Lee Dong-geol's Warning: "Chosun Industry's Insolvency Could Recur"

Excessive Competition Among Three Shipbuilders Inevitable
Shipbuilding Industry Restructuring Essential
Success Cases of Doosan Heavy Industries and HMM

Dong-geol Lee, Chairman of the Korea Development Bank

[Asia Economy Reporter Song Hwajeong] Lee Dong-geol, chairman of the Korea Development Bank (KDB), warned that the number of insolvent companies is expected to increase due to a "perfect storm" of adverse factors. He expressed particular concern that if the restructuring of the shipbuilding industry does not take place, there could be a recurrence of large-scale insolvency risks in a few years.

According to KDB on the 3rd, Chairman Lee made these remarks during an online press conference the previous day. He said, "There is talk of a perfect storm caused by multiple adverse factors hitting simultaneously, such as the Ukraine war, inflation, and interest rate hikes, which will lead to a significant increase in insolvent companies."

He especially expressed concern about the potential recurrence of insolvency risks in the shipbuilding industry. Due to the aftermath of large-scale insolvency in the shipbuilding sector during 2015-2016, restructuring is still ongoing. If industrial restructuring does not occur, large-scale insolvency could happen again in a few years. Chairman Lee said, "In the current state, excessive competition among the three major shipbuilders is inevitable," adding, "Although the recent LNG ship boom seems to improve the shipbuilding industry's situation, this is a misguided optimism, and there is a risk that large-scale insolvency in shipbuilding could recur in a few years."

Chairman Lee believes that restructuring at the shipbuilding industry level is essential. If the global ship demand boom does not last for a considerable period, the shipbuilding Big 3 cannot coexist. Ultimately, they will be forced into cutthroat competition, making profitability improvement difficult and potentially leading to large-scale insolvency again. He stated, "We need to downsize centered on Daewoo Shipbuilding & Marine Engineering (DSME) and adjust the industry scale according to global demand," emphasizing, "It is time to fundamentally reconsider the shipbuilding industry."

Chairman Lee stressed the need for swift restructuring if the number of insolvent companies increases in the future. He pointed out, "When I took office in September 2017, KDB's warehouse was filled with unresolved insolvent companies, with more than ten large-scale insolvent firms," adding, "Previous governments provided financial support to struggling companies as a stopgap measure, which prevented proper restructuring of insolvent companies." During his leadership at KDB, restructuring was completed for 11 companies, including Kumho Tire, Korea GM, Daewoo Construction, HMM, Dongbu Steel, Heung-A Shipping, and Doosan Heavy Industries & Construction. Chairman Lee cited Doosan Heavy Industries & Construction and HMM as success stories. He said, "HMM has been fully normalized and is now only awaiting sale; its corporate value has grown so much that the sale might not be easy," and, "Doosan Heavy Industries & Construction is a model case where restructuring was successfully completed in a short time through close cooperation between the major shareholder and KDB." Doosan Heavy Industries & Construction graduated from creditor management on February 28, after 1 year and 11 months since requesting emergency funding from KDB and the Export-Import Bank of Korea. Chairman Lee emphasized, "If the number of insolvent companies increases significantly and the market cannot resolve them, KDB must swiftly and principledly handle the restructuring, as was done with Doosan Heavy Industries & Construction."

Regarding Ssangyong Motor, which he cited alongside Daewoo Shipbuilding & Marine Engineering and KDB Life Insurance as a failed sale case, Chairman Lee highlighted the importance of sustainable business viability. He said, "Potential buyers of Ssangyong Motor seem to expect financial support from KDB, but funding decisions must be based on whether the business is sustainable," adding, "Ssangyong Motor fundamentally lacks competitiveness, and unless it proves sustainable business viability, recovery through financial support alone will be difficult and could cause another large-scale insolvency."

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