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  1. South Korea to create 11 trln won fund for banks exposed to shipping restructure

South Korea to create 11 trln won fund for banks exposed to shipping restructure

The Bank of Korea will lend a maximum 10 trillion won for the state-bank fund via a conduit bank, the Industrial Bank of Korea (IBK), and that fund will later purchase contingent convertible bonds (CoCos) from the two state-banks.

By: | Published: June 8, 2016 11:46 AM
South Korea expects a 20 percent drop in major shipbuilders' capacity and 30 percent drop in their workforce by 2018 versus 2015 after the restructuring process. (Reuters) South Korea expects a 20 percent drop in major shipbuilders’ capacity and 30 percent drop in their workforce by 2018 versus 2015 after the restructuring process. (Reuters)

South Korea said on Wednesday the government and the Bank of Korea will create a 11 trillion won ($9.50 billion) fund to support two state-run banks most exposed to shipping and shipbuilding firms currently being restructured.

“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 said in a speech announcing the corporate restructuring plans.

South Korea expects a 20 percent drop in major shipbuilders’ capacity and 30 percent drop in their workforce by 2018 versus 2015 after the restructuring process.

The two state-run banks to be capitalised are Korea Development Bank (KDB) and the Export-Import Bank of Korea (KEXIM).

The Bank of Korea will lend a maximum 10 trillion won for the state-bank fund via a conduit bank, the Industrial Bank of Korea (IBK), and that fund will later purchase contingent convertible bonds (CoCos) from the two state-banks.

Contingent convertible bonds are hybrid assets that can be switched by the borrower from bonds into shares if a pre-set trigger is reached.
The rest of the capital for the state-bank fund will be provided by loans from Korea Asset Management Corporation (KAMCO), which will also be in charge of setting up the actual fund.

The fund will be in operation by end-2017, although this date may change during year-end reviews.

Separately, the government plans to transfer 1 trillion won worth of assets to the Export-Import Bank by September this year and this will be reflected in next year’s government budget.

The central bank will also consider direct capital injection into the Export-Import Bank in future if needed.

South Korean markets were unmoved by the announcement as the funding measures were widely expected.

SHIPPERS, SHIPBUILDERS’ EFFORTS

Yoo added that South Korea’s top three shipbuilders have also come up with a plan to weather the difficult market conditions, which they see lasting for two to three years ahead.

The world’s three largest shipbuilders, Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering, have submitted additional plans to sell up to 4.8 trillion won in combined assets and find 3.6 trillion won through cost cuts, the government said in a statement.

Daewoo Shipbuilding plans to sell up to 1.6 trillion won in assets including 14 subsidiaries and raise 1.9 trillion won in cost cuts, the government said, while Samsung Heavy said in a separate statement it plans to sell shares to raise funds, without elaborating.

Hyundai Heavy said in a statement it will sell shares in Hyundai Motor and construction materials maker KCC Corp among other assets and spin-off businesses.

The government will also support South Korea’s second-largest shipper, Hyundai Merchant Marine, in its  attempt to enter into a shipping alliance, while a creditor bank-led restructuring is ongoing at the country’s largest shipper Hanjin Shipping Co Ltd.

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