Shipping Firms Face Full-scale Restructuring in Korea

The government said Thursday that it will speed up restructuring for troubled shipping companies by having them undergo full-scale self-rescue measures in return for fresh funds.

In a report to President Lee Myung-bak at Cheong Wa Dae, Financial Services Commission (FSC) Chairman Chin Dong-soo said that the regulator will seek to sign a memorandum of understanding (MOU) with mostly small shipping companies to minimize bankruptcies in the once-booming shipping industry and improve their financial conditions.

Under the MOU, cash-strapped ship builders will have to dispose of unprofitable units and assets, as well as attract fresh investments from the outside.

A senior FSC official said creditor banks will sign the restructuring pact with shipping companies. ``Then, they will be under the workout program and will receive fresh loans through a fast track program. A 4 trillion-won restructuring fund will also acquire idle ships from the firms to financially help them,'' the official said.

The FSC's move came after a lackluster overhaul of the domestic shipping sector as creditors have not finalized a list of companies subject to either liquidation or debt rescheduling. They were supposed to announce the list by the end of June.

There has recently been a growing call for the restructuring of the domestic shipping industry as some major foreign shipping firms are falling into deeper financial trouble, despite improving overall economic conditions around the world.

Additionally, the regulator is considering allowing the restructuring fund to put more money into buying ships in a bid to better help the struggling industry. Currently, the fund assumes 40 percent of the purchase price, while financial institutions and shipping firms themselves bear 20 percent and 40 percent each, respectively.

But the FSC is considering making the fund take on up to 60 percent of the sales price, while reducing the financial burden of banks and shipping firms to help them promote more transactions of idle ships.

The 4 trillion won fund had initially planned to buy about 62 ships but so far, only 17 ships worth 198 billion won have been purchased.

Meanwhile, the FSC plans to ease rules to promote the establishment of non-banking financial holding groups headed by insurers and security firms. Under the revised ``Financial Holding Company Act,'' a controlling stakeholder in the non-banking financial holding company will be allowed to borrow up to two-thirds of its investment in the firm and put that money into it for a greater stake.

But a majority stake holder in a bank-controlled financial holding company cannot invest with borrowed money. Many financial groups here have adopted a holding company structure headed by their banking units.