W100b reserve set up for refund guarantees for small and mid-sized shipbuilders

South Korea set up a 100 billion-won ($88.7 million) reserve for policy banks to issue refund guarantees for small and mid-sized shipbuilders, officials said Thursday.

The fund is aimed at supporting small and mid-sized shipbuilders, which are struggling with prolonged losses amid expectations that new orders may rise, the Financial Services Commission said in a statement. 

RG is a form of security for the ship purchaser, which usually makes advance payments on an order. In case the ordered vessel cannot be delivered, the bank that has taken on the guarantee of the shipbuilder would make the refund. Without such a guarantee, it's virtually impossible for a shipyard to get orders.

In the first half of 2017, banks issued 2.1 trillion won worth of refund guarantees for big shipbuilders, according to the statement.

In contrast, small and mid-sized shipbuilders won a total of 19.9 billion won in refund guarantees for the first six months.

About 30 small and mid-sized shipbuilders are expected to benefit from the fund, which will be offered over the next four years, the FSC said.

The fund was announced at a meeting of economy-related ministers earlier in the day. 

Deputy Finance Minister Lee Chan-woo told reporters that small and mid-sized shipbuilders have difficulty in getting RGs due to the financial industry's risk-aversion sentiment. 

The government will draw up additional measures to support the shipbuilders if necessary, Lee said. (Yonhap)