Banks issue refund guarantee for Hyundai Heavy's new order

A group of banks, led by KEB-Hana Bank, have offered a refund guarantee for a new order won by Hyundai Heavy Industries Co., ending their monthlong tussle over the issue, industry sources said Thursday.

Early last month, Hyundai Heavy, a major shipyard, won a deal from a Greek customer to build two oil tankers. But KEB-Hana Bank and other creditors, increasingly concerned about their credit exposure to the ailing shipbuilders in the country, were reluctant to offer refund guarantees for the order.

A refund guarantee issued by a shipyard's bank is important for a shipowner when ordering a new vessel from a shipyard. If the shipyard defaults, the bank's refund guarantee provides the shipowner with the money already paid.

Without a refund guarantee, winning a new shipbuilding deal is almost impossible for a shipyard.

New orders clinched by South Korean shipyards fell to record lows in the first half of the year, largely due to a protracted industry slump, mirroring their worst-ever business performance.

South Korean shipbuilders have been under severe financial strain since the 2008 global economic crisis, which sent new orders tumbling amid a glut of vessels and tougher competition from Chinese rivals.

The country's top three shipyards -- Hyundai Heavy Industries, Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. -- suffered a combined operating loss of 8.5 trillion won ($7.72 billion) last year. The loss was due largely to increased costs stemming from a delay in the construction of offshore facilities and an industrywide slump, with Daewoo Shipbuilding alone posting a 5.5 trillion-won loss.

The shipbuilders have recently drawn up sweeping self-rescue programs worth 10.35 trillion won in desperate bids to overcome the protracted slump and mounting losses.

Meanwhile, Hyundai Heavy and its two affiliates -- Hyundai Mipo Dockyard Co. and Hyundai Samho Heavy Industries Co. -- plan to establish a unified after-service unit to better respond to customers' needs.

The upcoming unit will improve quality control for the three companies, Hyundai Heavy said. (Yonhap)