Refunds Not Guaranteed
The Export-Import Bank of Korea adjusts its refund guarantee (RG) criteria that it applies to Korean shipbuilders so as to prevent cutthroat competition among them.
The bank is planning to provide no RG when a shipbuilder fails to receive a certain ratio of prepayment while obtaining an order for a large container carrier, an LNG carrier or the like. The new rule, however, is not to be applied to bidding against foreign companies.
The prepayment used to be as large as 80 percent of a total contract amount when conditions were favorable in the shipbuilding market in the past. These days, however, the ordering parties are reducing their prepayments due to the continuing recession in the industry, and tend to pay the rest when their ships are actually delivered. This is called heavy-tail. For shipbuilders, this practice means a decrease in cash flow and an increase in borrowing even when there are more contracts. As such, the heavy-tail practice has been mentioned as the main culprit behind the liquidity crisis of the shipbuilding industry.
The bank is going to ban the heavy tail when it comes to competition between Korean shipbuilders. At the same time, it is planning to set up a deliberative committee with the Korea Development Bank, the Korea Trade Insurance Corporation and the like, so as to examine the appropriateness and feasibility of shipbuilders’ contracts.