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South Korea vows more steps to help revamp ailing shipbuilders

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South Korea said it will take more active steps to help the nation's shipping and shipbuilding industries reduce debt and weather a global slump.

[SEOUL] South Korea said it will take more active steps to help the nation's shipping and shipbuilding industries reduce debt and weather a global slump.

Lenders will regularly review progress of restructuring plans that are submitted by shipping lines and builders, including Hyundai Merchant Marine Co and Daewoo Shipbuilding & Marine Engineering Co, the Financial Services Commission said in an e-mailed statement on Tuesday. Mergers among the country's biggest companies in the two industries are inappropriate, according to the statement.

A plunge of more than 50 per cent in oil prices in the past two years has roiled South Korea's shipbuilders, which reported losses last year amid delivery delays and cancellations. Orders for new vessels have shrunk, while shipping liners battling losses or smaller profits are paring their workforce and considering consolidation after years of overcapacity depressed freight rates.

"The focus of the restructuring is to deal with overcapacity and loss of competitiveness for companies involved," Yim Jong Yong, the commission's chairman, said at a briefing in Seoul.

"Companies and creditor banks can't do this alone. We all need to work together and fast to make this happen."

Hanjin Shipping Co and Hyundai Merchant Marine, the country's two biggest container carriers, need to lower charter rates for ships they have leased from shipowners and reach an agreement with individual bondholders to restructure the debt before creditors start providing support, the commission said.

Reducing charter rates will be vital for Hyundai Merchant's survival, Mr Yim said, adding that it has until the middle of May to negotiate the fees. Freight rates have declined 25 per cent this year, the commission said.

A realignment in global shipping alliances recently has increased the urgency for Hanjin Shipping and Hyundai Merchant to improve their financials, the commission said. 

Last week, CMA CGM SA, Cosco Container Lines, Evergreen Line and Orient Overseas Container Line signed a preliminary agreement to form a new group, making it the second-biggest in the world after a partnership between AP Moeller Maersk A/S and Mediterranean Shipping Co.

Daewoo Shipbuilding will need to submit additional reform plans to creditors, including more job cuts, the commission said. Hyundai Heavy Industries Co and Samsung Heavy Industries Co will be required to hand in their own plans, which will be closely monitored by their banks.

The government is also monitoring the steel, petrochemical and construction industries to ensure they remain competitive, the commission said.

South Korea undertook several steps earlier to help companies suffering from oversupply and slowing demand.

The government said in December it plans to work with creditors to set up a US$1.2 billion fund to help local shipping companies pay for new vessels they've ordered, according to the Ministry of Oceans and Fisheries. The government also will push shipyards to downsize and focus on their core businesses, and will seek to close or sell those that can't survive on their own.

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