South Korea is launching a KRW 11 trillion (USD 9.5 billion) worth fund for state-run banks intended for the country’s ailing shipbuilding and shipping industries, the government announced on Wednesday.
The banks being targeted by the fund are Korea Development Bank (KDB) and the Export-Import Bank of Korea (KEXIM), which are hit the most by unprofitable loans, especially as they are forced to push their maturity now that the country’s major shipbuilding and shipping companies embark on restructuring.
The country’s Big Three shipbuilders, Hyundai Heavy Industries (HHI), Daewoo Shipbuilding and Marine Engineering (DSME) and Samsung Heavy Industries (SHI), have all launched self-rescue plans that include massive asset sales and workforce cuts.
As a result, the government expects a 30 percent workforce drop in the shipbuilding industry by 2018 from 2015 once the restructuring process is completed. In addition, it is anticipated that the country’s shipbuilding capacity will be reduced by 20 percent.
“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,” Finance Minister Yoo Il-ho is quoted as saying by Reuters.
Under the plan, Bank of Korea will loan up to KRW 10 trillion to the fund via the Industrial Bank of Korea (IBK) and in return, the fund will purchase contingent convertible bonds from the two banks.
Korea Asset Management Corporation (KAMCO), which will set up the fund, will provide the remaining KRW 1 trillion.
The fund is expected to be operational by end of 2017.