Invest in shipbuilding! South Korean government fully "subsidizes" Hyundai Merchant Marine

After the loss of Hanjin Shipping, Hyundai Merchant Marine has become the hope of the South Korean government to rebuild the glory of South Korea's shipping industry. The South Korean government has decided to invest heavily in "subsidizing" Hyundai Merchant Marine to order 20 ultra-large container ships, aiming to become the seventh or eighth largest container shipping company globally and ultimately build a world-class large shipping company.

On December 20, 2017, the bill "Regarding the Establishment of the Korea Maritime Promotion Corporation (KMPC)" proposed by Lee Gae-ho, a member of the South Korean Democratic Party, was passed by the Legislation and Judiciary Committee. The purpose of establishing the KMPC is to help Hyundai Merchant Marine become a global shipping company.

On December 21, the Ministry of Oceans and Fisheries (MOF) announced that it would quickly form a seven-member committee, led by the vice minister, to promote the passage of the KMPC bill before the end of July 2018.

In August 2017, the Ministry of Oceans and Fisheries announced plans to establish the Korea Maritime Promotion Corporation (KMPC), which will be established in Busan in June 2018 with a capital of 5 trillion won (approximately US\$4.62 billion). The Ministry of Oceans and Fisheries stated that the establishment of the Korea Maritime Promotion Corporation is to support the development of South Korea's shipping and shipbuilding industries, making South Korea a major shipping and shipbuilding power.

According to International Ship Network, KMPC was established by the South Korean government with initial capital of 3.1 trillion won (approximately US\$2.86 billion). The South Korean shipbuilding and marine sector invested 1 trillion won, the Korea Maritime Guarantee Insurance sector invested 550 billion won, and the South Korean government invested 1.55 trillion won. The South Korean government holds 51% of the shares, totaling 1.35 trillion won (approximately US\$1.25 billion) in spot goods and 200 billion won in cash (approximately US\$184.81 million). If necessary, KMPC will increase its capital to 5 trillion won through additional investment.

KMPC's mission is to handle the financial and industrial policy support needed for the reconstruction of South Korea's shipping industry due to the long-term economic recession and the bankruptcy of Hanjin Shipping. The company will also undertake existing maritime financial support projects and provide investment guarantees for ship terminals, financial support services such as used ship purchases and leasing. At the same time, the company will also provide information on market conditions to support shipping service transactions, stabilize and promote shipping company management projects, such as replacing old ships, and operate the national important transportation system to transport goods in emergencies.

The Ministry of Oceans and Fisheries stated that after the launch of KMPC, Hyundai Merchant Marine's scale will also grow. According to company law, Hyundai Merchant Marine can issue bonds four times higher than KMPC's initial capital, and it is expected to issue 12.4 trillion won (approximately US\$11.46 billion) in bonds.

At the same time, Hyundai Merchant Marine is expected to begin ordering ultra-large container ships from the beginning of 2018. KMPC and Hyundai Merchant Marine will jointly invest over 3 trillion won (approximately US\$2.77 billion) to order 20 ships, including 9 20,000 TEU container ships and 11 13,000 TEU container ships, thus becoming the seventh or eighth largest container shipping company globally.

On the other hand, KMPC will also accelerate its support to help rebuild South Korea's shipping industry. The Ministry of Oceans and Fisheries stated that even during the committee stage, Hyundai Merchant Marine can issue letters of intent and pay a 10% deposit for new ship orders. Previously, the South Korean government announced that it would issue a special guarantee of 100 billion won for refunds to the Korea Development Bank and the Korea Export-Import Bank. Therefore, when Hyundai Merchant Marine faces a financial crisis, the special guarantee for refunds can reduce its financial burden.

Since implementing a self-rescue plan in June 2016, Hyundai Merchant Marine has reached agreements with many global shipowners to reduce the lease prices of unfinished leases. Correspondingly, the lease prices of its chartered vessels will increase again starting in 2020. In addition, the strategic cooperation with the 2M alliance will end in early 2020. Therefore, Hyundai Merchant Marine is seeking to expand its scale to survive in the shipping market. Since it takes two years for Hyundai Merchant Marine to receive newly built ultra-large container ships, the company is expected to order new ships at the latest in the first half of next year.