The government's decision to actively support the increase in the issuance of Refund Guarantee (RG) has relieved small and medium-sized shipyards. RG is a guarantee provided by financial institutions for the advance payment made by shipowners to shipbuilders, and without obtaining an RG, it is impossible to win a ship order. Small and medium-sized shipyards have faced limitations in receiving support from financial institutions due to their lower credit ratings and poor financial structures compared to large shipyards.
On the 9th, the government held a meeting of economic-related ministers and announced measures to expand special guarantees, diversify issuing institutions, and promptly reflect improved financial conditions in their "Plan to Expand Shipbuilding RG Supply." Unlike large shipyards, which have smooth RG issuance, the intent is to increase the limit for small and medium-sized shipyards, allowing them to secure more orders.
Typically, a ship undergoes a design and production process lasting between 2 and 2.5 years before being delivered to the shipowner. After receiving about 10% of the ship price as a deposit, the bank issues an RG to the shipowner. Following this, payments of 10% to 20% of the ship price are received according to the construction process, with the final 60% paid upon delivery of the ship. Shipbuilders either borrow money from banks or receive deposited funds through an escrow system, which holds payments made by shipowners until final confirmation of payment.
With the expansion of RG issuance, companies such as Daehan Shipbuilding, K Shipbuilding, and HJ Shipbuilding & Construction are expected to benefit. Recently, these companies have returned to profit as the number of ship orders has increased, with their combined operating profit rising from 131.8 billion won in 2023 to 176.9 billion won last year.
In the past, small and medium-sized shipyards have been requesting an expansion of RG issuance, but since the financial crisis in 2008, financial institutions have strictly limited RG issuance due to massive losses. In the early 2010s, some shipyards entered workouts due to deteriorating financial conditions after delivering ships.
The shipbuilding industry believes that unlike in the past, the increase in RG issuance will lead to increased orders and improved financial structures due to the avoidance of indiscriminate low-price bidding. There is also a possibility that South Korean shipyards will gain indirect benefits from strengthened regulations on China after the inauguration of U.S. President Donald Trump.
A representative from a medium-sized shipyard said, "There have been many cases where we missed high-quality orders because the RG limit was fully reached, and these contracts mostly went to China. If RG issuance increases, South Korea's medium-sized shipyards will be able to absorb these orders."