The state-run banks of South Korea will conduct “profit checks” on new shipbuilding orders at Korean yards in order to weed out subpar deals as per the Government announcement on Friday. Choi Kyung-hwan, , the South Korean Finance Minister, said the yards will have to look elsewhere for financing on unprofitable orders.
The Export-Import Bank of Korea, Korea Development Bank and Korea Trade Insurance Corporation have said they will comply with the new “profit-check” mandate.
Money losing projects pull down financial institutions which can be a burden for the economy as a whole.
The recent downtrend of 20% of new orders for the same period last year may call for only lesser such checks.
The Kexim Bank analysts have forecast that orders will be down nearly 30% year-on-year for 2015 overall, despite bright spots like the ten new VLCCs ordered by Bahri from Hyundai Heavy Industries earlier in the year. The slim order books plus bank supervision could mean trouble ahead, especially for smaller yards which depend on external finance largely. With approximately $44 billion, and the Financial Supervisory Service has recently indicated that the yards could pose a systemic risk to the South Korean economy if not successfully restructured including closure of the smaller “marginal firms”.
Restructuring can eventually help the national economy which is the echo of the massive consolidation of Chinese shipyards by the Chinese Ministry of Industry and Information Technology (MIIT).
The liner companies are forced to trim expenses and slow newbuilding orders due to the recent drop in container rates, down two thirds in eleven months on the busy Asia to Europe route. There is a downturn in offshore oil, dry cargo, and container shipping. South Korea’s Daewoo Shipbuilding was hit by Maersk’s announcement of the cancellation of options for six 20,000 TEU second-gen Triple-E class ships on November 4.
Source: Yonhap News
