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[EDITORIAL] Unending corruption

[THE INVESTOR] Fresh allegations of accounting fraud have surfaced at Daewoo Shipbuilding & Marine Engineering, this time involving the troubled company’s incumbent management.

Prosecutors have already questioned Kim Yeol-jung, the shipbuilder’s chief financial officer, over the suspicions that he had manipulated the company’s financial statements to reduce its 2015 operating losses by 120 billion won ($108 million).

Investigators suspect that Daewoo’s incumbent president Chung Sung-lip has been aware of the alleged accounting fraud.

Chung is the very person who brought to light last year accounting fraud to the tune of 5.4 trillion won that his two predecessors committed.

After his appointment as Daewoo president in June last year, Chung reported the problem to financial regulators and undertook a “big bath” to clean up the balance sheet.

As a result, Daewoo’s operating loss in 2015 swelled to 5.5 trillion won, which included losses of the preceding years that had been concealed by the former CEOs.

Yet Chung himself is suspected of having succumbed to the temptation of cooking financial statements to reduce the company’s 2015 loss, which was necessary to prevent the company’s stock from facing trading restrictions on the bourse due to serious capital impairment.

Daewoo had to avoid stock trading restrictions to ensure that it could receive fresh loans from its creditors. Last October, creditors decided to offer 4.2 trillion won worth of loans to the struggling company.

The allegations against the incumbent management have made the company’s prospects for a turnaround murkier. They could weaken prospective customers’ confidence in its survival. Creditors could further delay the provision of the promised fresh loans to the company, worsening its liquidity problems.

Furthermore, the allegations again called into question the legitimacy of the government’s efforts to keep the corruption-ridden company alive.

On Sunday, the Financial Supervisory Service announced the result of its credit risk analysis of more than 600 financially weak companies. Among them, it put 13 firms in category C, meaning they should undergo creditor-led debt workout programs. Another 19 companies were grouped in category D, meaning they should be put under court receivership.

Curiously, Daewoo Shipbuilding was given the B rating, a credit level awarded to financially healthy companies, although its balance sheet is in shambles. Daewoo’s debt ratio exceeded 7,300 percent last year, a level high enough to justify its liquidation.

The credit rating for Daewoo indicates the government’s determination to revive the poorly managed shipbuilder. Yet public support for its decision is getting thinner as the company’s future prospects are overshadowed by a seemingly unending series of corruption allegations.

(theinvestor@heraldcorp.com)

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