Korea issues $10.75 bn in refund guarantees to shipbuilders

South Korean banks and state-run financial institutions will issue $10.75 billion worth of refund guarantees (RGs) to domestic shipbuilders, which the government expects to help them bag $26.9 billion worth of new shipbuilding orders.

The guarantees on advance payment refunds include $680 million to be offered to medium-sized shipbuilders in Korea, including Daehan Shipbuilding Co. and K Shipbuilding Co.

That is enough for them to win $1.7 billion worth of new orders, said the Ministry of Trade, Industry and Energy and the Financial Services Commissions on Monday.

The remaining $10.1 billion will go to three shipbuilders under HD Hyundai, the world’s largest shipbuilding group, as well as Samsung Heavy Industries Co.

This is the first time for South Korea to issue refund guarantees since 2013, when it injected liquidity in the sector through RGs in the aftermath of bankruptcies at medium-sized shipyards.

Kookmin, Hana, Shinhan, Woori and Nonghyup will provide the financing, along with provincial banks and state-run lenders such as Korea Development Bank, Export-Import Bank of Korea and Industrial Bank of Korea.

Ship owners tend to pay about 40% of the shipbuilding price in advance.

They tend to sign shipbuilding contracts with a guarantee to get back their advance payment if the shipbuilder fails to deliver a vessel.

Write to Jung-Hwan Hwang at jung@hankyung.com

Yeonhee Kim edited this article.