South Korea will pump $9.5bn (11 trillion won) into state-run policy lenders reeling from huge losses on loans made to the beleaguered shipbuilding and shipping sectors to help them deal with further corporate distress, says FT.
South Korea's fund will support two state-run banks most exposed to shipping and shipbuilding firms currently being restructured. The China slowdown is partly to blame.
The two state-run banks to be capitalised are Korea Development Bank (KDB) and the Export-Import Bank of Korea (KEXIM).
"The fund will buy hybrid bonds issued by state-run banks," Finance Minister Yoo Il Ho said. "We will swiftly carry out restructuring of shipping and shipbuilding companies under the principle that the companies strictly implement their own reform plans and take losses incurred" .
Yonhap news agency reports the fund will be used to help shipowners buy and sell vessels with less financial risk and to guarantee acquisition of new vessels ordered in the country shipyards, as Korea Trade Insurance Corporation and Korea Maritime Guarantee Insurance will offer insurance services for the deals. The Korea Development Bank will also participate in the fund.
Shipbuilding, a key plank of the country’s $1.38tn economy and a sector that employs about 200,000 people, is suffering globally from overcapacity and waning trade flows.
South Korea expects a 20 percent drop in major shipbuilders' capacity and 30 percent drop in their workforce by 2018 versus 2015 after the restructuring process.
South Korea, home to the world’s three biggest shipbuilders, has been further buffeted by costly restructuring and legacy issues.
South Korea's top three shipbuilders have also come up with a plan to weather the difficult market conditions, which they see lasting for two to three years ahead.
The world's three largest shipbuilders, Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering, have submitted additional plans to sell up to 4.8 trillion won in combined assets and find 3.6 trillion won through cost cuts, the government said in a statement.
Local media reports that the Korean government will also require local shipbuilding companies to restructure and downsize in order to optimize their operations during the challenging market times. Mergers and acquisitions are expected.
