South Korea’s government and central bank are to create an 11 trillion won (US$9.5 billion) fund to support two state-run banks most exposed to the country’s struggling shipping and shipbuilding firms.
“Our key industries like shipping and shipbuilding are being aggressively caught up by countries like China and management conditions have worsened due to weak global trade,” South Korean Minister of Strategy and Finance Yoo Il-ho said in a speech yesterday to announce the corporate restructuring plans.
South Korea expects a 20 percent drop in major shipbuilders’ capacity and a 30 percent drop in their workforce by 2018 from last year, after the restructuring process.
The two state-run banks to be capitalized are Korea Development Bank and the Export-Import Bank of Korea.
Following the announcement, the IMF said it supported Korea’s corporate reform and urged the government to implement additional fiscal stimulus and the central bank to ease monetary policy.
The Bank of Korea is to lend a maximum of 10 trillion won for the state bank fund via a conduit bank, the Industrial Bank of Korea, and that fund is later to purchase contingent convertible bonds from the two state banks.
Contingent convertible bonds are hybrid assets that can be switched by the borrower from bonds into shares if a preset trigger is reached.
The rest of the capital for the state bank fund is to be provided by loans from Korea Asset Management Corp, a state-backed distressed assets bank, which is also to be in charge of setting up the actual fund.
The fund is expected to be operational by the end of next year.
South Korea’s top three shipbuilders have also come up with plans to weather the difficult market conditions, which they see lasting for the next two to three years.
Hyundai Heavy Industries Co Ltd, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering Co Ltd, have submitted additional plans to sell up to 4.8 trillion won in combined assets and find 3.6 trillion won through cost cuts, the government said in a statement.
Daewoo Shipbuilding plans to sell up to 1.6 trillion won in assets, including 14 subsidiaries, and raise 1.9 trillion won in cost cuts, while Samsung Heavy plans to sell shares to raise funds and Hyundai Heavy is to sell shares in Hyundai Motor Co and construction materials maker KCC Corp among other assets and spin-off businesses, the government said.
The restructuring and financial support of the sector comes amid wider scrutiny of the management of the industry.
Prosecutors yesterday raided the offices of Daewoo Shipbuilding to investigate charges against two former CEOs for allegedly mismanaging company operations, a company spokesman said.
Daewoo, which reported a 3.3 trillion won record net loss last year, is cooperating with the investigation, the spokesman said.
The Seoul Central District Prosecutors’ Office declined to comment on an ongoing investigation.
The government is also to support South Korea’s second-largest shipper, Hyundai Merchant Marine, in its attempt to enter into a shipping alliance, while a creditor bank-led restructuring is ongoing at the country’s largest shipper, Hanjin Shipping Co.
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