DSME collapse likened to Enron

DSME collapse likened to Enron

The decline and fall of Daewoo Shipbuilding & Marine Engineering (DSME) has been compared to the bankruptcy of US energy giant Enron, and questions are now being asked how much politicians in Seoul helped cover up the huge accounting fraud that has rocked one of the world’s largest shipyards.

Kim Jong-in, head of the opposition Minjoo Party of Korea (TMPK), warned yesterday that the incorrect financial reporting at DSME, which has spiralled to more than $5bn, “seems quite similar to Enron in the US, in that they were both the result of accounting fraud.” Enron’s bankruptcy in late 2001 as a result of massive accounting fraud is still one of the largest bankruptcies in US history.

Kim said the National Assembly in Seoul must now conduct a thorough investigation into the affair. The opposition party is questioning why the government handed DSME millions of dollars in emergency aid last October, when it was already clear the yard had been cooking its books.

Chae Yi-bai, a politician with the People’s Party, complained yesterday that “the heads of major economic bodies met at the Blue House [South Korea’s presidential palace], yet no materials or records have been kept” of the meeting from last October. Present at that meeting were senior secretary to the president for economic affairs Ahn Jong-beom, deputy prime minister for the economy Choi Kyoung-hwan, and Financial Services Commission (FSC) chairman Yim Jong-yong.

South Korea’s Public Records Management Act requires records to be kept for all meetings with anyone at the vice minister level or higher present.

South Korean president Park Geun-Hye has faced plenty of flak for her administration’s handling of the local shipbuilding sector, which has been shedding thousands of jobs in recent months on the back of the dire shipping markets and low orderbooks. Last month, Park warned the nation’s shipbuilders will have to endure plenty more pain. Addressing parliament, Park said there would need to be “bone-crushing” efforts in order to resurrect Korean shipbuilding.

“If we don’t carry out a bold restructuring by downsizing the overgrown workforce… and cutting costs, the future of not only the shipbuilders but also the whole economy will be in jeopardy,” Park warned.

A number of former DSME senior management executives have been interviewed by prosecutors recently. DSME admitted last year that for at least two years it had actually made a loss, although it had originally reported a profit.

DSME’s restructuring is seeing thousands of redundancies and many of its overseas business put on the chopping block, including DSME Mangalia, Romania’s largest shipyard.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

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1 Comment

  1. Avatar
    mp nayar
    July 7, 2016 at 12:45 am

    Worst think for a business is to be run by polished accounting reports. One day reality comes and the flying aircraft stay on aprons/passengers with their boarding passes.
    Lessons to be learnt or not to be forgotten