As The Export-Import Bank of Korea said it will resume advance payment refund guarantee (RG) support for mid-sized shipbuilders for the first time in three years, expectations are growing that the industry will get breathing room for new orders. RG refers to a guarantee under which a financial institution agrees to refund the advance payment to the shipowner if the shipbuilder fails to deliver the vessel as contracted.
According to the shipbuilding industry on the 24th, Hwang Ki-yeon, head of The Export-Import Bank of Korea, visited K Shipbuilding Co., Ltd. in Changwon, South Gyeongsang, on the 21st and said the bank will newly support RG worth 150 billion won for mid-sized shipbuilders whose operations have normalized. It is the first time since 2022 that the bank has moved to support RG.
RG is considered an essential condition for signing a shipbuilding contract. Shipowners require the issuance of RG as a means of loss compensation in case ship construction or delivery is not completed on time. In March, mid-sized shipbuilders also said, "To win orders for ships overseas, the limit on RG must be expanded and more financial institutions need to step up to issue it."
With The Export-Import Bank of Korea stepping in to support RG, mid-sized shipbuilders have secured capacity for new orders. Mid-sized shipbuilders such as HJ Shipbuilding & Construction, Daehan Shipbuilding, and K Shipbuilding Co., Ltd. have been winning orders while drawing down their existing RG to the maximum.
A mid-sized shipbuilder official said, "The amount is not large, but considering that the RG limit is restored only after ship delivery is completed, this new support will be a big help for orders." The 150 billion won in RG that the bank decided to support this time is about 10% of last year's total issuance.
In the industry, there is also a view that financial institutions, including The Export-Import Bank of Korea, should raise RG issuance limits to match reality. As the shipbuilding market has improved recently, not only large companies but also mid-sized shipbuilders have seen their performance and credit improve, but the industry says this has not been properly reflected in RG limits.
An industry official said, "In 2022, there was even a case where we won orders for eight container ships but the contract was canceled because RG was not issued," adding, "The current RG limits remain at 2021 levels, when the slump continued." The official added, "Chinese shipbuilders are taking the orders that mid-sized Korean shipbuilders are missing." Shipbuilder A's RG limit is $450 million (about 666.9 billion won), which was the amount granted in 2021.
However, the government and financial institutions say it will be difficult to quickly raise RG limits as the industry demands. Even if corporations' performance improves, there is a time lag before it is reflected in credit ratings, and given that shipbuilding is a highly volatile industry, there is a risk that unexpected bad loans could occur and financial companies could be left holding large losses.
A government official said, "We are communicating with the industry and monitoring market conditions so that mid-sized shipbuilders do not face difficulties in winning new orders due to insufficient RG limits or lack of issuance."