KDB steps in to help pay for shipbuilders' orders

The state-owned Korea Development Bank formed a $1.8 billion fund to help pay to fill orders at the country’s shipyards as commercial banks pare financing on tumbling vessel prices. “State companies like us have to step in and fill some of the gap left by the global commercial banks,” Kim Joong-gon, a senior manager in KDB’s ship-finance team, said at the Marine Money Forum in Busan on Friday. “There are still many uncertainties in the shipping industry as global trade hasn’t improved and asset values have fallen.”
The Korea Asset Management Corp., also state-owned, has set up a similar fund as the government assists yards in the world’s biggest shipbuilding nation. Commercial lenders have curbed shipping loans as vessel prices have slumped to a four-year low on plunging trade, leaving banks at risk of being unable to recoup defaults by seizing ships.
“There are conflicts between banks and shipping lines because there’s a big gap on the valuation of assets,” Kim said. “Reaching a compromise is a very long process.”
So far 16 shipping lines have applied to KDB for funding to pay for 44 vessels, said Lee Dong-hae, head of the lender’s shipping financing team.
Daewoo Shipbuilding & Marine Engineering Co., STX Pan Ocean Co. and Dongbu Insurance Co. have all agreed to participate in the fund, he added. KDB is also asking financial companies in Singapore and Hong Kong to take part, he added.
The fund’s first project was to provide loans for a cape-size bulk carrier being built at Daewoo Shipbuilding & Marine Engineering Co., the world’s second-largest shipyard, Lee said. Korea Line Corp. ordered the vessel, which has been chartered to move coal for Korea South-East Power Co., he added.
The KDB fund is also considering two other cape-size ships ordered by Korea Line, Lee said. These are being built by Daewoo Shipbuilding and STX Offshore and Shipbuilding Co.
Korea Asset Management has so far bought 14 vessels through its fund, which will be increased to as much as 4 trillion won ($3.4 billion), Lee said.
The price of ships has dropped as much as 40 percent from their peaks in the third quarter of last year, according to Yang Jong-seo, a researcher at the state-run Export-Import Bank of Korea.
The weekly Clarkson Index, a measure of prices for all types of vessels, dropped to 142 on Oct. 16, the lowest since Oct. 15, 2005, according to Clarkson Plc, the world’s largest shipbroker.