The Export-Import Bank of Korea (www.koreaexim.go.kr, Chairman Kim Yong-hwan, “Korea Eximbank”) announced on November 25 that it will provide USD 307 million in ship export financing, comprising a USD 177 million Direct Loan* and a USD 130 million Comprehensive Guarantee**, to Teekay, a Canadian oil & gas shipping company.
Teekay signed a USD 757 million FPSO*** exporting deal with Samsung Heavy Industries, and plans to participate in the North Sea crude oil project led by UK’s BG Group.
The FPSO ordered by Teekay will cost USD 1 billion to build, of which USD 200 million will go to purchasing parts made by Norwegian engineering company Framo, to be supplied to Samsung Heavy Industries.
* Direct loan: long-term loan provided by Korea Eximbank to foreign buyers to finance their purchase of Korean products.
** Comprehensive Guarantee: financial instrument designed to get commercial banks to participate in lending to a foreign buyer by guaranteeing the buyer’s repayment.
*** FPSO (Floating Production Storage and Offloading): a floating vessel designed to receive hydrocarbons produced from nearby platforms or subsea template, process them, and store oil until it can be offloaded onto a tanker or, less frequently, transported through a pipeline.
Korea Eximbank explains that this project is a prime example of inter-ECA (export credit agency) cooperation to facilitate the export of Korean-made ships.
Aside from Korea Eximbank, K-Sure will provide a USD 307 million export insurance, while the Norwegian Guarantee Institute for Export Credits (GIEK) also agreed to provide a USD 120 million export guarantee.
As European commercial banks continue their retreat from marine finance since the global financial crisis, ECAs are assuming an ever-increasing role in supporting exports of large vessels and offshore platforms.
Earlier in June, Korea Eximbank had signed an ‘MOU for Promoting Cooperation in the Shipbuilding and Offshore Plant Sectors’ with GIEK at the international shipping trade fair ‘Nor-Shipping.’
Korea Eximbank and GIEK have been sharing information and seeking co-financing opportunities in shipbuilding and offshore projects ever since, which led to their co-financing of the Teekay deal.
In negotiating the financing agreement with Teekay, Korea Eximbank has also worked closely with K-Sure through the council of public financial institutions.
Korea Eximbank also got Korea Exchange Bank, a Korean commercial bank, to participate in this project by mitigating risk through the Comprehensive Guarantee.
Korea Exchange Bank had, earlier in August, provided USD 71 million in ship financing backed by Korea Eximbank’s Comprehensive Guarantee, offering a glimpse of the strengthening cooperation between public-sector and commercial banks in promoting Korean ship exports.
Korea Eximbank plans to continue enlisting the participation of Korean commercial banks in ship finance deals through increased use of its risk-mitigation tools such as Comprehensive Guarantees and Senior Credit Facilities*.
* Senior Credit Facility: backed by Korea Eximbank, this facility guarantees that commercial banks will be repaid their “senior debts” before other creditors receive any payment. This helps to ease the repayment risk and interest rate burden for commercial banks.
A Korea Eximbank official remarked, “With increasing global interest in the development of marine resources, there is a constant demand for ships and offshore plants in which Korean shipbuilders possess competitiveness. The Bank plans to expand its ship finance activities in order to help Korean shipbuilders win more contracts for high value-added ships.”
