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Korean Shipbuilders’ Creditor Banks to Expand Refund Guarantee Limits
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Korean Shipbuilders’ Creditor Banks to Expand Refund Guarantee Limits
  • By Jung Min-hee
  • March 21, 2018, 00:15
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Creditor banks of local shipbuilders have decided to extend the limit of refund guarantee (RG) for new ships to build this year by up to 50 percent compared to last year.
Creditor banks of local shipbuilders have decided to extend the limit of refund guarantee (RG) for new ships to build this year by up to 50 percent compared to last year.

 

Creditor banks of Hyundai Heavy Industries Co. and Samsung Heavy Industries Co. have decided to extend the limit of (RG) for new ships to build this year by up to 50 percent compared to last year. This came after the number of orders won by Hyundai Heavy Industries and Samsung Heavy Industries has increased with the number of new orders in the global market growing. With the latest decision, Hyundai Heavy Industries and Samsung Heavy Industries are expected to obtain more orders as one of the biggest obstacles for receiving new orders has removed.

According to financial and shipbuilding industry sources on March 20, eight creditor banks, including the Korea Development Bank (KDB), the Export-Import Bank of Korea (Korea Eximbank), KEB Hana Bank, Woori Bank, Shinhan Bank, NH Nonghyup Bank, KB Kookmin Bank and the Industrial Bank of Korea (IBK), have decided to extend the RG limits of Hyundai Heavy Industries by 30 percent to US$5 billion (5.36 trillion won) and that of Samsung Heavy Industries by more than 50 percent to US$2.5 billion (2.68 trillion won) this year. The creditor banks set the limit for Hyundai Heavy Industries to US$3.1 billion (3.32 trillion won) and issued US$3.7 billion (3.96 trillion won) worth of RGs last year, while they held the line for Samsung Heavy Industries to US$1.18 billion (1.26 trillion) and issued most of them at US$1.16 billion (1.24 trillion won) from December last year to March this year.

An official from creditors said, “We will continue to stick to last year’s principles but we have agreed to proactively increase the limits considering the fact that the two shipbuilders are winning more orders this year.” Creditor banks are planning to set up the order and allocate RGs according to the amount of loans when two shipbuilders receive new orders and make a contract with the two in the near future.

In fact, the financial industry’s perception of the shipbuilding industry is gradually changing this year. Financial companies and institutions have limited the RG issuance as the shipbuilding market had been in depression and shipbuilders had been struggling with debt and filing for bankruptcy for the past few years. For Daewoo Shipbuilding & Marine Engineering Co., financial firms have been issuing RGs for the company in order from 2015 but only state-run banks are fully responsible for it. Hyundai Heavy Industries and Samsung Heavy Industries have also been receiving RGs from financial firms by turns from the end of 2016. This is because financial companies felt pressure to expand loans for shipbuilders. Therefore, the financial industry’s decision to extend RG limits shows the growing belief in the shipbuilding industry’s recovery.

From the beginning of the year, large shipbuilders have been winning new orders. According to Clarkson Research, a British shipbuilding and marine analysis agency, South Korean shipbuilders bagged 910,000 compensated gross tonnage (CGT) last month and topped global scale in booking new orders by accounting for 52.3% of global shipbuilding orders at 1.74 million CGT in February. China with 26.9 percent came after. Domestic shipbuilders also show confidence as they are raising the target figures. Hyundai Heavy Industries aims to obtain 30 percent more orders for US$13.2 billion (14.14 trillion won) this year, while Samsung Heavy Industries set up this year’s goal at US$8.2 billion (8.79 trillion won), up 18.8 percent from a year earlier.

The two companies are improving their financial structures smoothly as well. Hyundai Heavy Industries successfully completed 1.24 trillion won (US$1.15 billion) of the capital increase by allocation to stockholders earlier this month and Samsung Heavy Industries also secured the amount allocated in a public offering for the capital increase targeting the company's employee stock ownership association.

An official from the shipbuilding industry said, “When domestic financial institutions refuse to issue RGs, shipbuilders need to get RGs from foreign insurance companies that charge two times higher guaranty rates. Hyundai Heavy Industries succeeded in increasing capital and Samsung Heavy Industries also received nods for the capital increase. So, there will be no major problems with the two companies’ financial structure.”

Meanwhile, Daewoo Shipbuilding, which is under a voluntary agreement with creditors, and STX Offshore & Shipbuilding Co., which needs to submit its high-intensity self-rescue plan within a month, are expected to have difficulties in receiving RGs from banks for a while.