The Export-Import Bank of Korea (www.koreaexim.go.kr, Chairman Kim Yong-hwan, “Korea Eximbank”) announced on September 30 that it has provided USD 300 million in ship financing to Scorpio Tankers Inc., which purchased 18 product tankers from three domestic shipbuilders* including Hyundai Mipo Dockyard.

* Hyundai Mipo Dockyard (10), Samho Heavy Industries (6), Daewoo Shipbuilding & Marine Engineering (2)

Scorpio Tankers is a US-based owner/operator of product tankers which has ordered 61 tankers from Korean shipbuilders since August last year.

A notable feature of the ship financing provided by Korea Eximbank is that it includes a USD 125 million ship bond guarantee introduced for the first time in the world, alongside a USD 175 million direct loan*.

* Direct loan : long-term loan provided by Korea Eximbank to foreign buyers to finance their purchase of Korean products.

A ship bond guarantee is an instrument by which Korea Eximbank guarantees the bond issued by a foreign shipowner to finance its purchase of Korean-made vessels.

Whereas Korea Eximbank’s existing financial guarantee covers the risk of non-payment by foreign importers for commercial banks participating in a syndicated loan, the newly introduced bond guarantee offers the same protection to capital market investors.

A Korea Eximbank official opined that ship bond guarantees “open up new possibilities for utilizing the abundant liquidity in the capital market to fill the post-crisis gap in ship financing caused by the retreat of European banks.”

Bond guarantees had been used before by the Export-Import Bank of the United States, the UK Export Credits Guarantee Department, and France’s Coface in relation to aircraft exports, but never in the context of a ship-exporting deal.

Korea Eximbank plans to make extensive use of its bond guarantee program not only to facilitate ship exports but also to help domestic shipowners purchase fuel-efficient eco-friendly ships.

As it happens, the product tankers purchased by Scorpio Tankers are eco-friendly ships with fuel economies 20~30 percent higher than conventional ships.

In a recent announcement, Scorpio Tankers noted that its 50 thousand-ton product tanker built by Hyundai Mipo Shipyard in July 2012 has saved the company 25 percent more fuel than existing vessels in its fleet.

Eco-friendly ships are driving a recovery in the product tanker market, where orders and prices are picking up.