South Korea is stepping in to assist its shipbuilding industry by providing refund guarantees for shipyards for the first time since 2013.
According to local news agencies, South Korean banks and state-owned financial institutions will issue $10.75bn worth of refund guarantees to domestic shipbuilding companies — enough to help them contract $26.9bn worth of newbuildings.
South Korea’s Financial Services Commission confirmed the forthcoming support to the shipbuilding industry in a statement posted on its website, indicating that 12 major banks and policy financial institutions will issue the guarantees.
“With the recent rebound in the shipbuilding industry, five major banks will resume providing refund guarantees to mid-sized shipbuilders for the first time in 11 years,” the commission said.
It added that the Korea Trade Insurance Corporation will increase the guarantee ratio on refund guarantees from its previous level of 85% to 95%, which in turn will help to lower the guarantee burden on banks from the previous level of 15% to 5%.
Shipbuilding sources said banks and financial institutions have been reluctant to issue newbuilding refund guarantees, especially to the small and medium-size shipyards, after getting burnt in a downturn 11 years ago that resulted in the closure of several shipyards.
“This is good news for us, and this will benefit shipyards such as HJ Shipbuilding, K Shipbuilding, Dae Sun Shipbuilding and DH Shipbuilding,” one broker said.
He added that the country’s big three yards — HD Hyundai Heavy Industries, Samsung Heavy Industries and Hanwha Ocean — do not face refund guarantee issuance problems.
Yonhap News reported that KRW 1trn ($723m) worth of refund guarantees will be reserved for mid-size shipbuilders, which will be enough for them to contract $1.7bn worth of new orders.
The remaining $10.1bn will be allocated to the big three yards.
Financial houses joining this latest initiative include KB Kookmin Bank, Hana Bank, Shinhan Bank, Woori Bank and Nonghyup Bank, along with state-owned Korea Development Bank, Export-Import Bank of Korea and Industrial Bank of Korea.
