Korean Shipbuilding Investment Creating Risk for Government: OECD

Two of Korea's major shipbuilding financiers are creating fiscal risks for the government due to the shipbuilding industry's struggles, the Organization for Economic Cooperation and Development (OECD) warned yesterday.

The report comes just days after Korean shipyards retook the number one spot in global compensated gross tonnage (CGT) delivered, after delivering 12.1m in CGT in 2014. Korea had the number one spot from 2002 to 2009, until falling to second behind China in 2010, the Maritime Executive reported.

The Korea Times said that two-state owned export credit agencies, Korea Exim Bank and K-Sure, were singled out as having a problematic level of investment in an industry that is increasingly struggling to pay its debts.

"While in 2007 Korean shipbuilding companies' average debt levels were less than one-and-a-half times as large as their profits, in 2012 this ratio was above six," said the OECD.

The group also reported that Korean shipbuilders profitability fell to 5.1 percent in 2012 from 11 percent in 2008. Other shipbuilding countries have a higher rate of profitability: Japan is at 7.4 percent, China is at 9.1 percent, and Germany is at 10.6 percent.

"The increase in government exposure to the industry, via ownership and export credit policies, increases the risk to the government's finances, should the industry's performance worse," the report said.