Conflict Settled
A conflict between the Korea Development Bank (KDB) and the Export-Import Bank of Korea (Korea Eximbank) over issuing a refund guarantee (RG) to Daewoo Shipbuilding & Marine Engineering Co. (DSME) has been settled. Also, the two banks hold the same view on actual inspection results for the DSME, which were carried out separately.
According to financial industry sources on Nov. 18, the Korea Eximbank gave the whole advance payment from the Maersk Line, the world’s largest shipping company, to the DSME earlier this month. The advance payment was received through the issuance of Maersk RG. The RG is a form of insurance in which a builder’s bank compensates for damages to a purchaser if the builder fails to build a ship as requested. Financial institutions issue the RG, receive the advance installments of the contract price and provide it to the builder.
Previously, South Korea’s second-largest shipbuilder won an order from Maersk to build 11 very large container vessels, and signed the agreements with the KDB and Korea Eximbank in July to issue the RGs for five and six ships, respectively. However, Korea Eximbank paid the DSME only 60 percent of the 112 billion won (US$95.64 million) advance payment from Maersk, while the KDB immediately paid the shipbuilder the total 93 billion won (US$79.42 million) advance installment that it received from the Danish shipping company.
Korea Eximbank did not pay the partial advance payment to the DSME according to the company bylaws to provide the advance payment according to the official rate if the credit rating of the builder goes below the level that the company has set. Regarding this, the KDB expressed concerns that it was a measure to make the DSME face a liquidity crunch. Korea Eximbank changed its stance largely due to the request of the KDB to strengthen the standards of the RG issuance further.
As the two banks are bridging the differences, the DSME is expected to normalize its management. The KDB is the largest shareholder of the DSME with a 31.5 percent stake, and a creditor that loaned 4 trillion won (US$3.42 billion), while Korea Eximbank is the largest creditor with total credit offerings of 12 trillion won (US$10.25 billion).
Meanwhile, the DSME has won a deal to build two very large crude carriers (VLCCs) for the Angelicoussis Shipping Group. Under the agreement, the company will build two next-generation eco-friendly 319,000-ton VLCCs, which are the world’s largest at 336 meters in length and 60 meters in width, equipped with high-efficiency engines and the latest fuel-saving technologies. The two VLCCs will be delivered by 2017. The exact price of the ships is undisclosed, but it is estimated at up to US$200 million (234.2 billion won) considering the fact that the market price of a VCLL is US$90 to 100 million (105.4 to 117.1 billion won). Angelicoussis Shipping Group, since its first order in 1994, has ordered a total of 84 carriers, showing its trust in the DSME.