KDB issues strong warning to ailing shippers

By Nam Hyun-woo

The Korea Development Bank (KDB) said Thursday that it can manage potential losses that will be incurred if the country’s heavily indebted shipping giants go under court receivership.

This came as pressure on Hyundai Merchant Marine (HMM) and Hanjin Shipping from their main creditor, urging them to come up with better self-rescue efforts.

“Most losses expected to be incurred by HMM were absorbed as last year’s net loss and we have enough capacity to cover losses that may come from Hanjin Shipping,” said KDB Senior Executive Director Lee Dai-hyun, during a meeting at the Kensington Hotel on Yeouido.

Another KDB official said the bank is “healthy enough” to cover the loss and Lee’s remark is widely interpreted as KDB’s pressure on Hanjin, whose owner is yet to offer personal property to take responsibility for the company’s failure. The state-run bank is seeking to place the companies under receivership.

KDB posted a 1.9 trillion won loss last year. The bank said the deficit came after it appropriated allowances for not only HMM but also other problematic companies including Daewoo Shipbuilding and Marine Engineering (DSME).

“If it is for the shipping industry only, we don’t need a capital increase,” said Lee. “However, more capital will be needed if there is a massive and rapid restructuring of the shipbuilding industry and if the industry aggravates faster.”

KDB’s loans to HMM and Hanjin Shipping stand at 1.2 trillion won and 700 billion won, respectively. Adding some shipbuilders’ loans, the bank’s exposure to shipping firms and shipbuilders is expected to reach some 8.4 trillion won.

Market watchers expect if the two shipping giants go under receivership, bonds worth trillions of won could vanish in the worst-case scenario. KDB says it is a bearable stress, but it is seeking to secure more capital and raise its BIS ratio, a barometer for capital soundness, as preemptive measures.

KDB will increase the deposits’ share of its overall financing to 30 percent. Currently, financing through the won accounts for 75 percent of the bank’s overall financing. Of the 75 percent won-based financing, some 27 percent, or 34 trillion won, is from retail deposit services.

The bank in the short term will increase the deposits’ share of its won-based financing to 30 percent. In the long term, it seeks to increase deposits to 30 percent of its entire financing.

KDB is also seeking to sell its 132 non-financial subsidiaries, in order to raise its BIS ratio. The ratio stood at 14.28 percent last year. The average of commercial lenders currently reaches 14.85 percent.