| South Korea sets up $1.2bn vessel-owning fund |
South Korean shipbuilding industry is also expected to benefit. South Korean shipbuilders are expected to benefit from the funds, as carriers will place newbuilding orders at domestic yards.
SOUTH Korea has revealed fresh supporting measures for the country’s embattled shipping and shipbuilding sectors.
Seoul will establish $1.2bn worth of vessel-owning funds to help restructure embattled South Korean carriers, according to documents from the Ministry of Strategy and Finance and Financial Services Commission.
The shipping funds will place newbuilding orders and then lease them out to South Korean carriers on a bareboat basis in a bid to improve their fleet competitiveness, so that the carriers can have healthier balance sheets and avoid the risk of owing on the assets.
However, the money is only available to domestic shipping firms that have no more than a 400% debt-to-equity ratio, a criterion designed to encourage them to trim down their liabilities. The two biggest players, Hanjin Shipping and Hyundai Merchant Marine, for example, had a debt ratio of 907% and 1,113%, respectively, as of end September 2015.
Kim Yong-Beom, secretary general of the FSC said during a press briefing that shipping companies should make their own efforts to improve their financial structure, in addition to the government support offered.
The $1.2bn will be 50% provided by commercial banks, 40% by state-run financial institutions including Korea Development Bank and Export-Import Bank of Korea, and 10% by the companies themselves. The government may expand the total sum of the funds depending on further demand, according to the proposal.
South Korean shipbuilders are expected to benefit from the funds, as Seoul generally encourages their compatriot carriers to place newbuilding orders at domestic yards.
As part of the restructuring drive, the authorities also require that the shipbuilders improve their earnings by downsizing their business, including disposal of non-competitive operations and reduction of labour force.
While earlier financial aids to debt-ridden domestic shipbuilding players, such as Daewoo Shipbuilding & Marine Engineering, have triggered criticism from industry societies in other nations, Seoul appears more careful this time.
“The government will speed up corporate restructuring as it will find market-based solutions and strictly adhere to the rules concerning the use of public fund,” said Korea’s deputy prime minister Choi Kyung-Hwan at the 24th ministerial meeting on the economy on Wednesday.
“The government will not use public funds to bail out companies unless each party involved takes its share of responsibility.” |