Patent on partial reliquefaction technology ruled invalid as shipmaker loses case to rivals
South Korea’s Daewoo Shipbuilding & Marine Engineering (DSME) has lost a lawsuit in which the troubled shipyard claimed its reliquefaction technology was proprietary and patentable.
The South Korean Supreme Court ruled in favour of the company’s rivals Hyundai Heavy Industries (HHI) and Samsung Heavy Industries (SHI), which argued that the partial reliquefaction technology used by DSME was not that different from the process they had used. The court upheld their argument that DSME’s patent was invalid, meaning the shipyard will be banned from marketing the technology as its own when selling LNG-fuelled vessels. DSME has, however, already benefited from its move in January 2014 to register the technology as patentable. The technology – which allows boil-off gas to be reliquefied for reuse as fuel on LNG carriers – has helped the company win LNG carrier orders.
But the Supreme Court’s decision – which it made without even a hearing – cannot have come as a big surprise. The Patent Court of Korea had also ruled in January in favour of HHI and SHI on the issue. Before that, HHI and SHI had initiated patent invalidation battles against DSME with the Intellectual Property Trial and Appeal Board in December 2014 and March 2015.
Orders for environmentally friendly LNG carriers that use a mix of diesel and vaporised boil-off gas or natural gas as fuel have been increasing as environmental regulations covering the operation of ships tighten. The news comes at a difficult time for DSME, which remains plagued by heavy debt and continues to be propped up by its key creditors.
Cash flow crisis The company appears poised to run out of cash again, so is due to receive 500 billion won (US$445.9 million) in fresh loans later this month that will cover payments to subcontractors and to employees.
The new loans are part of a second bailout fund for DSME that was drawn up by its creditors, led by Korea Development Bank (KDB). The bank and other creditors announced in March a fresh rescue package for the shipbuilder, under which it will receive new loans worth 2.9 trillion won (US$2.59 billion), with bondholders and lenders swapping 2.9 trillion won of debt for new DSME shares.
Bondholders have also granted DSME a three-year grace period for the repayment of remaining debt. Shareholders have also approved a proposal to increase the ceiling of sales of convertible bonds to 4 trillion won (US$3.57 billion) from 2 trillion won (US$1.78 billion) currently. This has paved the way for the shipyard to secure fresh funding from its shareholders. DSME’s debt ratio is anticipated to plunge to around 300% with the debt-for-equity swap, down from 2,732% at the end of 2016.
KDB has announced separately on May 22 that its plans for a DSME bailout will not be scuppered by the objections of one remaining bondholder. The unidentified retail investor, which holds around US$1.4 million in DSME paper, sued last month to block the government’s restructuring plan for the shipyard.
“As the top court is likely to reject the bondholder’s case, as did the lower court, the DSME restructuring is set to go forward,” a DSME spokesperson told Korea Times.
For its part, DSME has pledged to put in place self-rescue measures worth 5.3 trillion won (US$4.73 billion) by the end of 2018.
The company has already raised or saved 1.8 trillion won (US$1.61 billion) by selling off non-core assets and axing its work force but will struggle to find more fat to trim. Nevertheless, DSME remains confident that its turnaround efforts are working and that its shares – which were halted from trading in July 2016 owing to its impaired capital base – may resume trading in October.