Bank issues refund guarantee for Samsung Heavy's new order

A policy bank has offered a refund guarantee for a new order won by Samsung Heavy Industries Co., helping one of the country's major shipyards proceed with the new shipbuilding order.

Late last month, the shipyard secured a 420 billion-won ($380 million) deal to build two LNG carriers, marking its first contract in almost one year.

The deal with a European customer came as local shipyards are suffering from a sharp decline in new orders amid a protracted industry-wide slump.

Samsung Heavy is also set to win more deals valued at a combined 3 trillion won, including a contract to build offshore facilities.

According to the sources, the state-run Industrial Bank of Korea has issued the RG to Samsung Heavy.

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

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

Earlier, a group of banks refused to issue an RG for a new deal clinched by Hyundai Heavy Industries Co., another local shipyard, out of concerns for their large credit exposure.

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 last year. The loss was due largely to increased costs stemming from a delay in the construction of offshore facilities and an industry-wide 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. (Yonhap)