- New support to target mid-sized shippers, shuns shipbuilders
- Kamco earned 107% return from post-crisis restructuring fund
Alfred Kim, the man in charge of helping salvage South Korea’s shipping industry at the state-funded bad loan company, doesn’t sound too optimistic.
“Nobody knows what the future is like as the shipping industry is still facing a tough time now,” said Alfred Kim, the fund’s project manager at Korea Asset Management Corp., based in Busan. “There’s large supply of ships, the Chinese economy isn’t doing very good. Right now, it’s very difficult to secure loans from the credit market and banks don’t want to invest more of their money on the shipping side.”
Kamco is prepared to spend $100 million annually through 2018 to support capital spending after a slump in global freight rates since 2009 pushed operators into bankruptcy. Korea Line Corp. and the company formerly known as STX Pan Ocean collapsed during the crisis, while Daebo International Shipping Co. failed in March. Korean firms are seen undertaking the most business restructuring in Asia outside Japan in the next 12 months, a survey by New York-based advisory firm AlixPartners LLP shows.
The hardships highlight Korean President Park Geun Hye’s struggle to revive exports that account for about half of gross domestic product, after shipments fell every month this year. That’s curbing stronger growth in an economy data Friday may show expanded 2.4 percent last quarter, from 2.2 percent in the previous period, a Bloomberg survey shows. It also echoes global woes, after Tokyo-based Daiichi Chuo KK filed for bankruptcy protection in September.
Kamco spent 467 billion won ($413 million) on 33 ships from a post-Lehman crisis fund to prevent vessels from falling into the hands of foreign investors at fire-sale prices. The fund, which also bought 11.3 trillion won of loans from banks and shipping companies, was dissolved in March 2015 after generating 107 percent returns, according to its annual report.
Still, its efforts failed to prevent STX Pan Ocean from bankruptcy in 2013 with $4.51 billion liabilities, the largest in the industry, according to Bloomberg data.
“Even though there’s been a lot of restructuring, the distress level has become widespread” across Korean industries, said Yung H. Chung, Seoul-based managing director at AlixPartners. “The shippers and shipyards are the hardest hit.”
The newest fund helped finance two bulk-carriers owned by SW Shipping Co. in May under a boat charter and hire-purchase plan at commercial rates, and Kamco has the capacity to fund five more vessels this year, Kim said. Kamco will only support shippers and avoid the bigger shipbuilding industry for now, he added.
This year, an index tracking 21 local transportation stocks on the Korean stock exchange has dropped more than 17 percent, after earlier hitting a six-year low in August. Examples including Daebo Shipping’s bankruptcy and Hanjin Shipping Co.’s considering a stake sale to improve finances suggest it’s best to keep out of the sector, according to Ik Sun Yoo at Shinhan BNP Paribas Asset Management Co. in Seoul. Smaller operators face a bigger quandary because of their limited capital and financing options, he said.
While freight rates rebounded in the past two quarters, they are still lower than a year ago and a tenth of the peak in 2008.
“The situation will not improve that much in the short term, so Korean shipping companies will continue to face that pressure,” said Yoo, the head of investment strategy. BNP Shinhan manages about 37 trillion won of assets. “I dislike shipping companies more than shipbuilders, but we are underweight on both in credit and equity.”
Kamco is ready to play a bigger role depending on industry conditions and requests from the government, Kim said. Since its launch, the fund has received applications for funding support from more than 10 shipping companies.
“They want more money and lower interest rates, everytime, ” Kim said. “Depending on project size, we can certainly do more.”