The Export-Import Bank of Korea (www.koreaexim.go.kr, Chairman Kim Yong-hwan, “Korea Eximbank”) announced on October 20 that the bank will provide USD 113 million in ship financing to a Korean shipping company, Sinokor Petrochemical, to fund its purchase of five medium-sized Product Carriers.

Sinokor Petrochemical had concluded a long-term charter agreement with one of the big three global energy companies, Royal Dutch Shell*, in November to transport the latter’s oil products, and thereafter ordered carriers from Hyundai Mipo Dockyard in January to implement the agreement.

* A listed company in the London Stock Exchange which ranked first in terms of net sales among the Forbes Global 2000 companies as of 2012. (Credit Ratings : Aa1 - Moody’s, AA - S&P and Fitch)

It was the first case in which Korea Eximbank provided a Ship Bond Guarantee on the USD 113 million ship purchasing loan.

In other words, Korea Eximbank will guarantee any bond Sinokor issues in order to repay the loan, in case the company determines that paying interest to bond investors would be cheaper than servicing its bank debt.

The financing provided by Korea Eximbank will be repaid with the fund raised from issuing the bond.

This marks the first instance where the bank is applying its Ship Bond Guarantee to support a vessel purchase by a domestic shipping company, since introducing the world’s first ship bond guarantee in early October.

Chairman Kim of Korea Eximbank explained, “The Ship Bond Guarantee is an innovative means of mobilizing domestic capital market liquidity to finance ship purchases at a time when Korean commercial banks are withdrawing from ship finance as a result of the slumping shipping market. It is also a way for domestic shipping companies to finance new vessel purchases at more favorable financing terms.”

Korea Eximbank restructured its organization in July, expanding the functions of its Ship Finance Department and renaming it as the Ship & Offshore Finance Department, and created a Shipping Finance Team, an independent team assuming full responsibility for supporting domestic shipping companies.

The role of public financial institutions is becoming more important as domestic shipping companies are struggling to cope with decreased shipping rates, higher oil prices, and lack of liquidity, while both domestic and foreign commercial banks are reluctant to provide financing for the shipping industry.

In response, Korea Eximbank is providing customized shipping finance packages through its newly established Shipping Finance Team. The bank is also planning to strengthen ties with domestic commercial banks and public financial institutions to bring the embattled shipping industry back to life.

A Korea Eximbank official remarked, “Global shipping companies are increasing their market dominance with active backing from their governments. Given the importance of the shipping industry in Korea’s export-driven economy, we will continue to lend firm support to the industry until such time as it sails out of turbulent waters and reaches the cycle of recovery.”