by Yoo Seungki
SEOUL, July 4 (Xinhua) -- Daewoo Shipbuilding & Marine Engineering, one of South Korea's top three shipbuilders, is being rocked by estimated trillions of won (billions of U.S. dollars) of accounting fraud amid the ongoing restructuring process for Daewoo as well as other two shipbuilders.
Former chief executive of Daewoo Shipbuilding was summoned by prosecutors on Monday for questioning over the suspected accounting fraud.
Koh Jae-ho, 61, who headed the troubled company from 2012 to 2015, appeared in the Seoul Central Prosecutors' Office to be questioned about whether he ordered the rigging of account books, after his predecessor Nam Sang-tae who had led the company for six years from 2006 was arrested last week.
Koh has been accused of ordering an accounting fraud to overstate operation profits from 2012 to 2014 by underestimating production costs in 40 offshore energy projects such as oil rigs and drilling ships.
Daewoo Shipbuilding posted operating profits of 440.9 billion won in 2013 and 471 billion won in 2014 each, but the company earlier this year restated operating losses of 778.4 billion won in 2013 and 742.9 billion in 2014 respectively to better reflect write-offs from the offshore energy projects.
In terms of equity capital, the amount of accounting problems is estimated by prosecutors to have reached 5.4 trillion won (4.7 billion U.S. dollars) from 2012 to 2014. Prosecutors are now looking into all of about 500 shipbuilding and overseas energy projects, raising possibility for additional accounting fraud uncovered.
Based on the rigged financial statements, the company offered over 200 billion won in bonus for executives and workers in 2013 and 2014, while doing damage worth tens of trillions of won to investors by selling corporate bonds and bills.
In 2015 when the company posted 5.5 trillion won of operating loss, which was later restated at 2.9 trillion won in operating loss, Daewoo Shipbuilding provided an 87.7 billion-won bonus, or an average 9.46 million won per person in incentives.
The prosecution's special investigation bureau for corruption offenses, ordered directly by prosecutor general, dispatched about 150 investigators on June 8, raiding Daewoo Shipbuilding's headquarters in Seoul and its Okpo shipyard on the southern island of Geoje.
The homes of some of former Daewoo Shipbuilding executives were searched to confiscate account books, computer hard discs and internal documents. On the same day, the government announced a plan to restructure troubled shipbuilders and shipping lines.
In January, the company's audit committee filed a petition with prosecutors to investigate the mismanagement of former executives on growing suspicion over the shipbuilder having concealed huge losses from offshore oil and gas drilling projects.
More than 400 minority shareholders have filed a lawsuit against Daewoo Shipbuilding and its former executives, calling for some 24 billion won in compensation as they suffered losses from stock investment based on the manipulated accounts.
BIG DEAL BETWEEN DAEWOO, SAMSUNG
As Daewoo Shipbuilding struggles to survive by itself, expectations spread that the company, which is controlled by state-run Korea Development Bank (KDB), may go on sale. The government sought to sell the shipyard in 2008, ending up in failure.
The strongest potential buyer is estimated to be Samsung Heavy Industries, one of the country's top three shipbuilders along with Hyundai Heavy Industries and Daewoo.
Market watchers said the merging synergy would be the biggest between Daewoo and Samsung as their shipyards are located in the southern island of Geoje and they have a different specialty in drill ships for Samsung and LNG carriers for Daewoo.
Samsung Heavy, however, seems not in a position to acquire another troubled shipbuilder as it plans to float new shares to improve its unhealthy financial structure. The financial regulator and the KDB have refrained from the big deal, concentrating on the implementation of their self-restructuring plans.
Three key shipbuilders had submitted their own downsizing plans to the government to raise money as much as 10.35 trillion won by cutting back on workers by 30 percent and reducing overcapacity by 20 percent by the end of 2018.
Hyundai Heavy plans to raise 3.5 trillion won by selling non-core assets, and Samsung Heavy aims to secure 1.5 trillion won. Daewoo Shipbuilding will sell all of its 14 subsidiaries, reduce the number of yards from seven to five and spin off the unit of special ships to sell a part of its shares.
Concerns loomed about massive layoffs in the shipbuilding industry. According to the Korea Offshore & Shipbuilding Association estimates, as many as 63,000 workers in shipbuilders and their subcontractors would lose jobs by the end of next year.
Daewoo Shipbuilding, which has some 13,000 employees, plans to cut about 600 employees every year for five years through 2020. Samsung Heavy offered early retirement toward 1,500 workers this year alone, planning to cut 5,000 employees by the end of 2018.
Including workers in subcontractors of Daewoo and Samsung, as many as 30,000 people are expected by some to lose their jobs in the Geoje Island and its surrounding regions. Hyundai Heavy, which has shipyards in Ulsan on southeast coast, plans to lay off some 2,000 workers via early retirement.
In the country's southeastern province, the number of those who are made unemployed increased from 52,000 in January to 58,000 in February and 68,000 in March each. The equivalent figures for jobless rate rose from 3.1 percent to 3.4 percent and 3.9 percent respectively.
The labor ministry decided to designate the shipbuilding industry as a "special employment support industry" to help fired workers rehired and companies maintain their workers. But the top three shipbuilding companies were excluded from the support system as they have enough capability to keep their workers.
According to Clarksons, Daewoo Shipbuilding's Okpo shipyard ranked first in the world in terms of backlog of orders with 7,478,000 compensated gross tonnage (CGT) of 111 ships. It was followed by Samsung Heavy's Geoje shipyard with 4,397,000 cgt of 81 vessels and Hyundai Heavy's Ulsan yard with 4,335,000 cgt of 91 units.
As new orders for the three shipyards are widely forecast to drop this year, possibilities are high for workers to be laid off after the backlog projects end.
