Ship financing

Ship financing (선박금융/船舶金融) means, in general, the ship-backed loans, by which a shipping company borrows funds to secure such a necessary ship as LNG ship or container carrier on a long-term basis.

Key words
ship financing, asset-based financing, SPV, charter contract, charterage, ship investment company

Ship financing mechanism
At first, a shipping company establishes a special purpose vehicle (SPV, 특수목적법인/特殊目的法人) at a flag of convenience (편의치적/便宜置籍) country. Then the SPV makes an agreement to build, or acquire, a ship and borrows a long-term loan by granting such ship as security.

The SPV has to pay the interest on, and the principal of, the loan with the charterage (용선료/傭船料) paid by the shipping company pursuant to a long-term sharter contract of the ship (장기용선계약/長期傭船契約). When the ship-backed securities are issued, their creditworthiness depends on the charterage payment capability of the shipping company.

Financial institutions
At present, various types of ship financing are dealt with by the Korea Development Bank, the Korea Finance Corp., the Korea Export Import Bank, etc.

In particular, ship investment companies as mentioned below provides shipping funds to shipping companies as well as the Korea Maritime Police and even the Navy.

Issue of Ship Finance Corp.
Politicians and businessmen in Busan area have demanded that the Korea Finance Corp. (KoFC, 정책금융공사) should be relocated at Busan. Otherwise, they are claiming that President Park is obliged to establish the Ship Finance Corp. (선박금융공사) as she promised to Busan citizens during the Presidential Election campaign.

However, the government has concluded that the establishment of the proposed Ship Finance Corp. could be in breach of the WTO Agreement, and the KoFC will be merged into the Korea Development Bank, the largest development financial institution in Korea.

Ship investment companies
In 2002, the Ship Investment Company Act (선박투자회사법/船舶投資會社法) was enacted to provide opportunities for sound investment in shipping and to contribute to stimulating the shipping industry. Article 1 of the Act.

The Act was wholly amended on December 27, 2007 to enhance the operational efficiency by changing the previous rule that one ship investment company should own one ship to the flexible rule that several subsidiaries of one ship investment company may own one ship each. Also the minimum existence period of the ship investment company may be shortened from five years to three years.

Under the Act, the "ship investment company" (선박투자회사) means a company incorporated under this Act to invest its assets in a ship (a ship under Article 2 (1) of the Ship Safety Act) and distribute to shareholders the profit therefrom.

The "ship investment management company" (선박운용회사) means any such person entrusted by ship investment companies with the management of ships and other assets as licensed by the Minister of Land, Transport and Maritime Affairs under Article 31.

The "asset custodian" (자산보관회사) means any trust company under the Capital Market and Financial Investment Service Act entrusted by a ship investment company with the safekeeping of its assets and the provision of other services related thereto.

The "ship operating company" (선박운항회사) means any company chartering a ship owned by a ship investment company or its subsidiary, and operating or chartering it out.

Where to contact

 * 세계로선박금융
 * 한국선박금융
 * KSF선박금융
 * 국제선박투자운용