A shipyard in Geoje, South Korea
South Korean banks and state-run financial institutions will issue $10.75 billion worth of refund guarantees (RGs) to domestic shipbuilders, which the government expects to help them bag $26.9 billion worth of new shipbuilding orders.
The guarantees for advance payment refunds include $680 million to be offered to medium-sized shipbuilders in Korea. That is enough for them to win $1.7 billion worth of new orders, said the Ministry of Trade, Industry and Energy and the Financial Services Commissions on Monday.
The remaining $10.1 billion will go to three shipbuilders under HD Hyundai, the world’s largest shipbuilding group, as well as Samsung Heavy Industries Co.
It marked the first time for South Korea to issue refund guarantees since 2013, when it injected liquidity in the sector through the RGs in the aftermath of bankruptcies at medium-sized shipyards.
Kookmin, Hana, Shinhan, Woori and Nonghyup will provide the financing, along with provincial banks and state-run lenders such as Korea Development Bank, Export-Import Bank of Korea and Industrial Bank of Korea.
The state-run Korea Trade Insurance Corp. then will guarantee future payments by shipbuilders to lower their burden to bear for the refund guarantee issuance.
Ship owners tend to pay about 40% of the shipbuilding price in an advance payment.
They tend to sign shipbuilding contracts with a guarantee to get back their advance payment if the shipbuilder fails to deliver a vessel.
By Jung-Hwan Hwang
jung@hankyung.com
Yeonhee Kim edited this article
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