[Teheran-ro] Banks Throw Cold Water on the Shipbuilding Industry

"Global shipowners are ready to place orders with small and mid-sized Korean shipyards, but the banks killed them — they drove them into bankruptcy."
This is how one industry insider views SPP Shipbuilding, which went bankrupt in 2019 after failing to obtain a refund guarantee (RG) for advance payments.
SPP Shipbuilding, which was strong in building MR tankers (medium-range tankers), a vessel type that is highly popular today, went under after its main creditor bank, Woori Bank, and the rest of the creditor group refused to issue or back RGs. Even when Samil PricewaterhouseCoopers, the sell-side advisor at a time of weak shipbuilding and shipping markets, met shipowners and brokers in the United Kingdom and Greece to ask about their willingness to place orders with SPP Shipbuilding, six out of eight said they were interested.
An RG is a payment guarantee under which a financial institution repays the advance payment to the shipowner if the shipyard fails to deliver the vessel on time or goes bankrupt. It is essential financing for winning shipbuilding orders.
Operations at SPP Shipbuilding Goseong Shipyard were suspended in the second half of 2016, and SPP Shipbuilding Sacheon Shipyard halted operations after delivering its final vessel in February 2017. However, because banks refused to issue and back RGs, the merger-and-acquisition option, which the sell-side advisor viewed as the best way to maximize recovery for creditors, was dismissed. As a result, the amount recovered was negligible compared with the 1.405 trillion won in new funds creditors injected between 2012 and 2015, and the outcome ran counter to the government’s efforts to create jobs.
Even now, in the midst of an unprecedented boom in shipbuilding, banks remain trapped in their RG trauma. Medium-sized yards such as HJ Shipbuilding & Construction and Daehan Shipbuilding, which have landed a flood of new orders, still struggle to obtain RGs smoothly. Korea Development Bank (KDB) and The Export-Import Bank of Korea (KEXIM) say their limits have been reached and push the responsibility onto commercial banks, while commercial banks either charge exorbitant RG fees or refuse to issue RGs altogether.
When a small shipyard failed to secure an RG, a Philippine shipowner even said, "It’s fine even without an RG." Trusting the technology and reliability of Korean shipyards, the owner was willing to risk losing tens of billions of won if the vessel was not delivered. Foreign shipowners across the sea are willing to trust our shipyards, yet banks in the same country do not trust the shipyards right in front of them.
Minister of Trade, Industry and Energy Kim Jung-kwan stated, "Support for RGs is a prerequisite that is directly tied to our competitiveness in winning orders. Through the Korea–US Shipbuilding Cooperation (MASGA, the Make American Shipbuilding Great Again initiative), we will actively support small and mid-sized shipyards so they can find new opportunities." Even so, many say that because of the banks’ dereliction of duty, the country is missing a chance to revive its industry.
The Financial Services Commission also needs to provide strong safe-harbor protections and incentives for banks that actively issue RGs. Enabling South Korea's shipbuilding industry to move beyond a boom-and-bust cycle and secure lasting competitiveness is no longer an issue that can be left solely to the private sector.
ggg@fnnews.com Reporter