STX Dalian has gone beyond redemption for not just the creditors but also the Chinese government. Public opinion is not good, and even the Dalian City Government is trying to back out. The Korea Development Bank (KDB), which is the main creditor bank, is feeling impatient as well. It needs to focus on the subsidiaries of STX in Korea that opted for corporate rehabilitation and is finding no other option but to give up on the shipbuilder.
Under the circumstances, STX Dalian, a shipyard worth three trillion won (US$2.8 billion), is likely to face the worst-case scenario of liquidation to end up in the hands of China.
STX has invested no less than two trillion won (US$1.9 billion) in the company, whereas the creditors lent just US$400 million. Even if they have to repay the 750 billion won (US$706 million) guaranteed by the subsidiaries in their place, the creditors need to separate the uncertainties of STX Dalian from the other businesses of STX in Korea. This is why the creditors expressed their desire to liquidate STX Dalian by selling it to the Chinese government.
The biggest roadblock to the liquidation is the back pay. Still, the problem appears to be solved these days at least to some extent. With the building of 15 or so ships completed, some of the wages of the subcontractor employees have been paid and those of some Chinese employees have been paid by selling equipment and raw materials. China cannot but agree to the liquidation in this same context as well. It is said that the Dalian City Government is planning to deal with the back pay issue first by selling equipment such as engines after liquidation in order to settle the public sentiment.
If STX Dalian is liquidated, the 40 to 50 Korean partner firms in China take a direct hit. The trade receivables worth approximately 100 billion won (US$94 million), overdue since the cessation of operations in March, are likely to go up in smoke then. The Chinese creditors suggested some plans to STX and KDB for business normalization, but the terms were too much for the Korean creditors. Industry insiders said that China is using its head to take STX Dalian at a giveaway price while using the excuse of business stabilization to put a good face on it.
The complex debt structure of STX Dalian makes it less attractive as an M&A target, but it can be addressed through a liquidation process and then China can take it away for almost nothing. The high-quality shipyard built through three trillion won (US$2.8 billion) of investment is on the verge of being handed over.