South Korea to float $3 billion fund to support ailing shippers

The Korean Government is considering creating a fund worth up to 4 trillion won ($3.02 billion) to support the ailing local shipping industry, the world's sixth largest by the number of ships, knowledgeable sources said.

The fund will likely be confirmed as an official state project at today's emergency "war-room" meeting, presided over by President Lee Myung-bak, the sources told JoongAng Daily.

The news arrived as the state-initiated credit risk evaluation of shipping companies is poised to pick the first targets to be restructured. The sources, from the Financial Services Commission and the Ministry of Land, Transport and Maritime Affairs, said the consensus is that such a fund is necessary to prevent the shipping industry from falling further into an economic morass.

They said the fund will be designed to provide liquidity to struggling shipping lines by purchasing ships from them.

Banks and private investors will be encouraged to participate in creating the fund, which will be led by the state-run Korea Asset Management Corporation, they said.

"The situation has become quite grim for local shipping companies amid the global economic crisis," said an official of the ministry.

"The concern is that a failing shipping company could bring about a domino-like collapse throughout the industry or beyond."

The profitability of shipping lines has been hit by the global economic downturn. The Baltic Dry Index, which measures changes in the profitability of shipping raw materials by sea, dropped from 11,793 on May 20, 2008 to 663 on December 5, 2008.

A total of 177 local shipping firms owed as much as 16 trillion won to local financial institutions as of the end of last year. The government fears a shock to the shipping industry could spread to the financial system.

According to the FSC, the credit risk evaluation of 37 large shipping firms will be finished by as early as next week. At the request of financial authorities, creditors began to study the fiscal soundness of shipping companies. Around 140 smaller shipping firm will also be put under the creditors' microscope for possible restructuring, the FSC said. The second-round restructuring will be finalised by June.

As measured by the amount of exports, shipping is the fifth-largest industry for Korea. Local shipping companies had exports of $36.7bn last year.

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