Young-wook Chin

As European Cash Dries Up, Korean Shipyards Look at Local Financing Options

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October 8, 2012

Young-wook Chin, President and CEO, Korea Finance Corp

(Bloomberg) — Korea Finance Corp. has bid for its first plane-financing deal and started offering loans to shipbuilders as local companies look for new funding sources amid reduced lending by European banks.

The state-owned lender began offering working-capital loans to shipyards last month and it has already agreed to provide as much as 700 billion won ($629 million) to STX Offshore & Shipbuilding Co., Executive Vice President Choi Bong Sik said in an interview yesterday in Seoul. The financer has also teamed with state-controlled Korea Development Bank to bid on funding for four Korean Air Lines Co. Boeing Co. 777 planes, he said.

“We see an opportunity for Korea Finance to fill the gap left by the European banks,” Choi said. South Korean carriers will receive 59 planes over the next five years, he said. Korea Finance only works on deals involving local companies.

Commercial lenders in Asia including Sumitomo Mitsui Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. have also expanded plane-financing this year as the region’s rising travel demand spurs aircraft purchases. European banks are retreating from their traditionally dominant role in funding planes and ships as part of wider cuts prompted by the Euro zone debt crisis.

South Korean shipyards are also borrowing more because slumping demand is forcing them to offer more generous payment terms, Choi said. The nation’s three biggest shipbuilders have sold a record amount of bonds this year, according to data compiled by Bloomberg. STX Group said by e-mail that it had been granted a loan by Korea Finance.

South Korean shipyards won $16.4 billion worth of orders in the first eight months of this year, compared with $37.8 billion a year earlier, according to Clarkson Plc, the world’s biggest shipbroker.

Korea Aerospace

Separately, Korea Finance and partners may also pick a preferred bidder for a 42 percent stake in Korea Aerospace Industries Ltd. next month, Choi said. Korean Air and Hyundai Heavy Industries Co. have both made preliminary offers for the stake, which is worth $1 billion at market prices. The sellers plan to complete a deal this year, Choi said.

Korea Finance also intends to raise the equivalent of about $500 million in bonds denominated in Chinese yuan or Japanese yen by early December as it seeks foreign-currency funds for loans, Choi said. The sale will complete the bank’s plan to raise $2 billion in foreign-currency debt this year.

– Seonjin Cha and Kyunghee Park, Copyright 2012 Bloomberg
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