Daehan Shipbuilding has secured $53m in cash injections from Kwangju Bank to help it ride out the order slump that has resulted from the coronavirus pandemic.

The South Korean lender has dispensed KRW 42bn ($35m) to the compatriot shipyard to ease cash flow problems.

The bank is scheduled to hand over a second tranche of funding, amounting to KRW 21.2bn ($17.6m), next month for the same purpose.

A Daehan executive confirmed the cash injection from Kwangju Bank, saying the funds are coming in the form of loans from the bank.

“These are not free money. We need to pay it back with interest,” the Daehan executive said.

“We are getting the loans from Kwangju Bank because of the outbreak of Covid-19. The pandemic has led to less shipbuilding activities. Buyers are adopting the 'sit-and-wait' attitude.”

Daehan has set a sales target to contract 12 newbuildings this year but has so far secured orders for only five tankers.

Shipbuilding payment terms usually involve a large portion of the price tag coming at the tail end of construction, the company said.

“During the course of constructing the ship, we need cash to buy materials and salary payments," the company said.

“[The] shipyard has to pay up to 60% of the construction cost. This led to a mismatch of cash flow for the shipbuilder. The funds from Kwangju Bank will be used for operating purposes.”

Backed by newbuilding contracts

Daehan said its newbuilding contracts will serve as collateral for the loans from Kwangju Bank, with Korea Development Bank (KDB) acting as the guarantor. State-owned KDB is the shipyard's largest creditor.

Daehan was expecting an improved shipbuilding market for the second half of the year as the Covid-19 impact eased. However, the company is not as hopeful as before now that the tanker charter market has deteriorated.

“With lower tanker charter rates, shipping companies will have less interest in ordering new ships,” Daehan said. “We think the next few months will be just as challenging as the first half of this year.”

According to Clarkson’s Shipping Intelligence Network, Daehan is sitting on an order backlog of 18 tanker newbuildings and one training ship.

The shipyard will be kept busy until late 2021.

Shipping companies that have vessels on order at the yard include Valles Steamship, Neda Maritime, Sun Enterprises, Minerva Marine, Angelicoussis Group, NS Lemos, Yasa Shipping, Pleiades Shipping Agency and International Andromeda Shipping.