Commercial Banks Resume RG Supply to Mid-sized Shipbuilders After 11 Years
Shinhan Bank Provides First RG to Daehan Shipbuilding
To expand exports in the domestic shipbuilding industry, 12 institutions, including 8 commercial and regional banks and 4 policy financial institutions, have agreed to provide 15 trillion won for the issuance of refund guarantees (RG) for medium and large shipbuilders. Notably, commercial banks will resume RG supply to medium-sized shipbuilders for the first time in 11 years.
The Financial Services Commission and the Ministry of Trade, Industry and Energy jointly held the 'K-Shipbuilding Export Finance Support Agreement Ceremony' on the morning of the 17th at the Plaza Hotel in Jung-gu, Seoul, announcing this plan. Attendees included heads of the five major commercial banks (KB Kookmin, Hana, Shinhan, Woori, NH Nonghyup), three regional banks (Gyeongnam, Gwangju, Busan), four policy financial institutions (Korea Development Bank, Industrial Bank of Korea, Korea Trade Insurance Corporation, Export-Import Bank of Korea), and representatives from three shipbuilders (HD Hyundai Heavy Industries, Daehan Shipbuilding, K-Shipbuilding).
The collaboration of these 12 institutions, including commercial banks and policy financial institutions, aims to support the competitiveness of the shipbuilding industry in securing orders and to expand exports. Domestic ship exports have been booming, reaching a total of 10.4 billion dollars from January to May, a 57% increase compared to the previous year.
Accordingly, shipbuilders urgently needed an expansion of RG supply, which is essential for shipbuilding contracts. Typically, when a shipbuilding contract is signed, the ordering party (shipowner) pays 40% of the shipbuilding price as an advance payment and requires a financial institution's RG to cover the shipbuilder's failure to deliver the ship on time.
Therefore, nine banks (the five major commercial banks, three regional banks, and Industrial Bank of Korea) and the Korea Trade Insurance Corporation signed the K-Shipbuilding Export Finance Support Agreement to expand RG supply for medium-sized shipbuilders such as Daehan Shipbuilding and K-Shipbuilding.
The nine banks will support nine RGs worth approximately 26 million dollars each, totaling 260 million dollars, in line with the RG issuance deadlines for already secured ship orders. Through this, the construction of nine ships worth a total of 700 million dollars (about 1 trillion won) is expected to proceed smoothly. The Korea Trade Insurance Corporation, through this agreement, increased the special guarantee ratio for RGs of medium-sized shipbuilders from the existing 85% to 95%, reducing the banks' guarantee burden from 15% to 5%.
Additionally, the Korea Development Bank plans to issue RGs worth 260 million dollars on its own for ships already ordered by medium-sized shipbuilders, and with the issuance of RGs, the construction of six ships worth a total of 570 million dollars (about 750 billion won) is expected to proceed smoothly. For future orders, RGs worth 160 million dollars will be issued according to the ship delivery schedule.
This is the first time that both commercial and regional banks have jointly participated in issuing RGs for medium-sized shipbuilders. In particular, the five major commercial banks are resuming RG issuance for medium-sized shipbuilders for the first time in 11 years after experiencing large-scale RG losses due to the shipbuilding industry's downturn.
On this day, Shinhan Bank also issued the first RG for one crude oil tanker (order amount 87 million dollars) ordered by Daehan Shipbuilding from a Belgian shipping company.
Meanwhile, for large shipbuilders who have already secured four years' worth of orders, eight banks including the five major commercial banks, Korea Development Bank, Export-Import Bank of Korea, and Industrial Bank of Korea have been sharing RG issuance. However, due to the recent boom in high-priced ship orders, most of the existing RG limits for large shipbuilders have been exhausted, so the eight banks granted a new RG limit of 10.1 billion dollars to the three Hyundai affiliates (HD Hyundai Heavy Industries, Hyundai Samho Heavy Industries, Hyundai Mipo Dockyard) and Samsung Heavy Industries.
Minister of Trade, Industry and Energy Ahn Deok-geun and Financial Services Commission Chairman Kim Ju-hyun listened to the voices from the shipbuilding industry during a meeting with attendees. Shipbuilder representatives expressed their gratitude, stating that the government's R&D support helped maintain competitiveness and solve workforce issues due to order expansion, and that the issuance of RGs for medium-sized shipbuilders, a long-standing wish of the industry, completes the final puzzle of K-Shipbuilding's competitiveness. They also requested that the resumed RG issuance by commercial banks for medium-sized shipbuilders continue in the future, as orders are expected to keep coming.
Minister Ahn said, "For maintaining K-Shipbuilding's global No.1 status, it is very important to promote the co-development of large and medium-sized shipbuilders," adding, "We will provide full support as a public-private team throughout the entire process from order to construction to export, and prepare a K-Shipbuilding super-gap technology roadmap by July to fend off the pursuit of emerging competitors."
Chairman Kim said, "The resumption of RG issuance by commercial banks for medium-sized shipbuilders, which was halted due to the shipbuilding industry's downturn, is very meaningful," and added, "We will continue to support shipbuilders' financial difficulties and maintain ongoing communication and monitoring with the industry."
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