Helping Expand Orders for Joseon Shipbuilding... Expanding Ship Financing Support Including RG

Commercial Banks and Regional Banks Also Join In

Financial Services Commission Chairman Kim Ju-hyun is attending the Emergency Economic Measures Meeting held at the Government Seoul Office on the 6th. Photo by Yoon Dong-joo doso7@

The government is strengthening ship financing support by issuing additional Refund Guarantees (RG) to revitalize orders for domestic shipbuilders. An RG is a guarantee whereby a guarantee institution pays the advance payment received from the shipowner on behalf of the shipbuilder if the shipbuilder fails to build the ship within the specified period or goes bankrupt.

On the afternoon of the 10th, the Financial Services Commission and the Ministry of Trade, Industry and Energy held a meeting with the shipbuilding industry at Hyundai Hotel in Dong-gu, Ulsan, and announced additional financial support measures containing these details. Attendees included Chairman Kim Joo-hyun, Minister Lee Chang-yang, and representatives from shipbuilders and equipment suppliers in the shipbuilding industry.

According to the Financial Services Commission, policy financial institutions and commercial banks have actively issued RGs to support orders for domestic shipbuilders. In fact, the amount of newly issued RGs increased by about 150%, from $6.94 billion in 2020 to $17.56 billion last year. However, recently, the domestic shipbuilding industry is in a boom period, and additional financial support is urgently needed due to order expansion, rising ship prices, and an increased proportion of advance payments.

Accordingly, the government will first expand RG issuing institutions to include Seoul Guarantee Insurance, the Machinery Equipment Construction Mutual Aid Association, and the Engineering Mutual Aid Association, in addition to policy financial institutions and commercial banks.

In addition, financial institutions such as commercial banks will actively participate in issuing RGs to support orders from large shipbuilders. RG issuance will be ensured so that there are no disruptions in orders for large shipbuilders' vessels, and if RG exhaustion is expected due to increased orders in the future, support will be strengthened by setting new RG limits considering order forecasts.

Currently, banks issuing RGs are facing a shortage of credit limits for individual shipbuilders due to the recent surge in RG issuance. However, as the Korea Trade Insurance Corporation has eased conditions for reinsurance support, financial institutions plan to actively support RG issuance for large shipbuilders, considering employment creation effects and the necessity of export support.

Additionally, regional banks (Daegu Bank) will also participate in issuing RGs worth about $100 million (based on outstanding balance) to the three shipbuilding affiliates of Hyundai Heavy Industries to support the shipbuilding industry.

Support for medium-sized shipbuilders will also be expanded. To expand RG issuance support, the Korea Trade Insurance Corporation will increase the guarantee ratio of special guarantees for medium-sized companies from 70% to 85%, and expand the support scale by 80 billion KRW to 200 billion KRW.

Furthermore, considering that commercial banks have expressed concerns about the financial structure and low-price orders of medium-sized companies, an investor relations (IR) session for medium-sized companies targeting banks will be held. If concerns are resolved through the IR, commercial banks will also consider issuing RGs to medium-sized companies. In particular, regional banks (Busan, Gyeongnam, Gojaju) will actively consider issuing RGs to shipbuilders located in their respective regions.

Moreover, the government will prepare RG issuance guidelines for appropriate orders so that this financial support can lead to a transformation in the profit structure of shipbuilders. To prevent financial institutions from becoming insolvent, protective measures such as exemption from liability will also be pursued for special approval rights to issue RGs exceeding the total credit limit.

Chairman Kim said, “Exports are the foundation of our country, and especially the shipbuilding industry is an industry that greatly affects the economy and employment, so policy financial institutions and commercial banks have continuously provided necessary support,” adding, “We will continue to monitor to ensure that these measures work effectively and provide practical help to shipbuilders.”