The Export-Import Bank of Korea (Korea Eximbank) announced on February 2 that it will provide more flexible ship financing support to assist shipbuilding and marine transport industries reeling from cancelled/postponed shipbuilding contracts as a result of the global economic recession and from the rising cost of raw materials.

Korea Eximbank had previously planned to provide a total of KRW 14.55 trillion (KRW 3.25 trillion in loans and KRW 11.3 trillion in guarantees) for ship financing support.

However, due to the unexpected rise in demand for capital among shipbuilders, the Bank decided to increase financing amounts.

The decision was based on market sentiments that Korea Eximbank, as a policy bank, should provide financial support to the shipbuilding and marine transport sector in consideration of the recession in maritime transport and reduced financing support from commercial banks.

In addition to increased financing support, the Bank is also considering guarantee fee rate reductions in light of current market conditions in the shipbuilding industry.

Korea Eximbank announced three support measures.

1 - Long-term ship financing support will be increased for cash-strapped Korean shipbuilders and shipping companies impacted by the Eurozone fiscal crisis.

2 - Support will be increased for high value-added ships such as drillships, large container ships, and Floating Production Storage and Offloading (FPSO).

3 - Letters of Intent (L/I) will be issued to ship owners in the ordering stage on behalf of Korean shipbuilders to help the them secure orders.

Since the 2008 financial crisis, heavy tail settlements* have been increasingly required in the shipbuilding sector, thus increasing financial burdens on shipbuilders.

* Payment method in which a substantial portion of payment is made at time of delivery.

Korea Eximbank actively assisted cash-strapped Korean shipbuilders with KRW 260 billion in ship financing, a 27% increase from January 2011 in the same period.

Chairman Yong Hwan Kim of Korea Eximbank commented, “These measures are in response to requests of the shipbuilding and transport industries for flexible ship financing so that Korean companies may put aside their fears and focus on maintaining competitiveness in their respective sectors.”

In order to further assist shipbuilding and transport sectors, Korea Eximbank and five major Korean shipbuilders convened at the Hall of the Korean Federation of Banks for the “2012 Ship Financing Strategy Forum” and discussed ship financing strategies to win more contracts amidst the slowdown in shipbuilding and marine transport sectors as well as countermeasures against China’s rapid rise in shipbuilding.

In addition, Korea Eximbank will meet with executives of major Korean marine transport companies on February 15, 2012 to discuss strategies which would assist Korea regain its competitiveness in marine transport.