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Wednesday, July 08, 2009

Kamco to rescue stranded shipping companies

Wednesday, 08 July 2009

State-run Korea Asset Management Company said on Tuesday it would buy 62 vessels from shipping companies in South Korea through its Won4,000bn ($3.2bn) fund to help free up funds for the troubled groups. The South Korean debt clearing agency has set up the fund with contributions from local banks and private investors to help troubled shipping companies ride out one of the industry’s most severe downturns in recent memory.
Kamco said that Hanjin Shipping, Hyundai Merchant Marine and STX Pan Ocean have all offered to sell their vessels to improve their financial status. Hanjin offered to sell more than 20 vessels, and Hyundai and STX about six each to the Kamco fund.
The shipping industry has come under financial pressure following a sharp drop in chartering prices – which have fallen about 60 per cent from their peak. The South Korean government has been pushing for the restructuring within the industry, which grew rapidly during the boom years, to prevent increasing insolvency among South Korean shipping companies.
At the end of 2004 there were 73 shipping groups with 471 ships. But by the end of last year there were 177 companies with 819 vessels. Many of those companies are now suffering amid the economic slowdown.
Samsun Logix, the country’s ninth-largest shipping group, went bankrupt in March and its smaller rival Park Road collapsed in November. Daewoo Logistics also filed for court receivership recently due to financial trouble.
The South Korean government fears that cash-strapped shipping companies may be forced to sell their vessels to foreign investors at fire-sale prices to avoid bankruptcy, just as they did in the wake of the 1997-98 Asian financial crisis.
Kamco said on Tuesday that it planned to buy the vessels, which are less than 15 years old, for an average price of Won50bn per ship. Kamco said it received offers to sell 72 vessels from shipping companies but 10 vessels were too old and did not fit its criteria.
“It is hard to buy them all at once, so we plan to buy 20 vessels at each stage by the end of this year,” Kamco said.
Kamco plans to lease the vessels back to the South Korean groups, with the aim of eventually recouping its investment by selling them back once the industry recovers. Kamco said it would take about five years to recoup its investment.

Source: Financial Times