New financing methods for shipbuilding? South Korean shipyards are testing blockchain technology

On February 16, HJ Heavy Industries (formerly Hanjin Heavy Industries) signed a Memorandum of Understanding (MOU) with Korea Land & Housing Corporation and Mirae Asset Securities. The three parties will collaborate closely on revitalizing Security Token Offerings (STO) based on blockchain technology, marking the first time such an innovative financing method is used to raise funds for shipbuilding.

According to shipbuilding industry sources in Korea, HJ Heavy Industries' move to collaborate with two financial companies possessing Korea's highest level of financing experience in the highly anticipated STO field is expected to create synergy.

According to the agreement, the three parties will focus their cooperation on exploring STO-related businesses in ship finance using blockchain technology, discovering new business models including applications for financial regulatory sandboxes, and discussing detailed implementation plans for the future.

STO refers to security-backed digital assets whose public offering of tokens is conducted legally and compliantly under a defined regulatory framework, in accordance with laws, regulations, and administrative rules. STO can transform real-world financial assets or rights, such as company equity, debt, intellectual property, as well as traditional physical assets like real estate, artworks, gold, and jewelry, into on-chain encrypted digital rights certificates, achieving the digitization of various real-world assets, rights, and services. Recently, as the shipbuilding industry began discussing the introduction of STO using blockchain technology, it has gained significant attention because individuals or institutions can proportionally own ships through the issuance of tokens representing rights to vessels.

Yoo Sang-chul, Vice President of HJ Heavy Industries, pointed out that the shipbuilding industry is a crucial export pillar for Korea, but it currently faces various difficulties, including challenges in financing. In response, HJ Heavy Industries plans to focus on raising funds through blockchain-based STOs, aiming to bring various innovative effects to the upstream and downstream supply chain ecosystem of the shipbuilding industry and lead the direction of Korea's shipbuilding industry in the blockchain era.

A source from HJ Heavy Industries stated that existing shipbuilding orders are handled by shipowners' capital and loans from financial institutions, entrusting shipbuilding companies to build vessels. However, if blockchain-based STOs are issued, small-scale decentralized investments can be made, diversifying fundraising methods. Currently, shipbuilding companies need to advance a large amount of shipbuilding funds before new vessels are delivered, but they only receive the final payment after delivery, inevitably leading to cash flow difficulties. In the future, if ship financing utilizing STOs is revitalized, by developing blockchain-based digital business models and financial products, convenient and secure transactions can be conducted through small-scale decentralized investments. By securing construction funds, shipbuilding companies can achieve stable and orderly new vessel construction, engage in competitive order-taking activities, increase their workload, and also expand shipowners' shipping capacity, thereby creating new opportunities for the entire maritime and shipbuilding industries.

Taking the signing of this agreement as an opportunity, HJ Heavy Industries plans to expand cooperation with Busan City in the future. Busan City is investing 75 billion Korean Won (approximately 58 million USD) to establish the world's first decentralized digital asset exchange, where all products can be tokenized and traded based on blockchain. The Busan Digital Asset Exchange will be responsible for the issuance, listing, trading, and management of digital assets, establishing a system that categorizes trading assets into securities and non-securities digital assets, and setting up three market management bodies: listing evaluation, market monitoring and supervision, and custody and settlement.

Busan City plans to tokenize assets such as ships, real estate, precious metals, agricultural products, livestock products, movies, and game IPs for trading on the Busan Digital Asset Exchange. Services, including virtual asset trading, are expected to be officially launched as early as the end of this year.

A source from HJ Heavy Industries stated: "We expect to revitalize ship financing using STOs through cooperation with Korea's top financial institutions. The company will continue to strive to discover new business models that create win-win situations for various parties in the shipbuilding industry chain, including shipbuilding companies, shipowners, investors, and supporting industries."