The ship financing unit of South Korean finance house Korea Asset Management Corporation (KAMCO) has introduced a new $85.7 million ship financing scheme.
KAMCO Ship Investment Management Corporation, in collaboration with Bank of Tokyo unit BOT Leasing and Finance, Standard Chartered Bank, Shinhan Bank, Woori Bank, and four shipping companies, including Sammok Shipping, Wooyang Shipping, and GNS Shipping, established the fund.
Under the scheme, a special-purpose company created by KAMCO will purchase five Panamax bulkers from the shipping companies and lease them back. The charter hire will be used to repay the principal loan amount and interest to KAMCO and the banks. The plan has been named Korea Tonnage Fund No. 3-7.
Transferring the ships to the funds would thus provide the shipowners with long-term funding and financial stability.
The financial institutions believe that the risk of default is low as the ships being purchased are committed to long-term shipping contracts with South Korean utility companies. The vessels are primarily used to transport steam coal from Indonesia and Canada. “This arrangement came about as a result of the solid support and close cooperation of national utility companies, in line with the development schemes of the government's policy banks,” KAMCO director Lee Jong-jin said.
KAMCO played an important role in facilitating the restructuring process and helping to develop financial markets. First, KAMCO purchased distressed assets from banks and other financial institutions, which allowed lending to resume at a time when liquidity was scarce.
This objective was complemented by increased supervision to ensure that banks were operating on sound commercial principles. Second, KAMCO’s resolution of NPLs contributed to the good progress made in Korea in recovering public funds injected by the government for financial sector restructuring. In addition, KAMCO disposed of many of these distressed assets through a number of innovative methods, including by issuing asset-backed securities, which launched an important new market in Korea.
In many countries the Asset Management Companies experience failed because the creation of AMCs did not lead to the development of a market for NPLs.
Such a market is typically missing in less developed countries because information asymmetries and a lack of creditor coordination make it very difficult to price NPLs.
KAMCO played a market-making role by overcoming such informational and coordination problems. Its active marketing activities brought together and intermediated between sellers and investors of NPLs.
Most notably KAMCO successfully convinced international players looking for distressed assets to become interested in the Korean market. Participation of foreign investors, in turn, encouraged participation of domestic investors.
Initially, KAMCO’s catalytic role was monopolistic, but, as the market deepened it became much less dominant.
Korea has a tradition of fiscal conservatism and a deep-rooted resistance to public debt. The political consensus on the need to cut public debt helped KAMCO refocus on rapid disposal of acquired assets and the recovery of public funds, rather than simply storing assets. KAMCO’s financial performance, however, has been mixed.
