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South Korea in the Fast LaneEconomic Development and Capital Formation$

Young-Iob Chung

Print publication date: 2007

Print ISBN-13: 9780195325454

Published to Oxford Scholarship Online: September 2007

DOI: 10.1093/acprof:oso/9780195325454.001.0001

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(p.381) Appendix 6.2: The Indebtedness of Shipbuilding and Shipping Companies

(p.381) Appendix 6.2: The Indebtedness of Shipbuilding and Shipping Companies

South Korea in the Fast Lane
Oxford University Press

The indebtedness of shipbuilding companies was 1.4 trillion won for Daewoo, 880 billion won for Hyundai, 820 billion won for Samsung, and 610 billion won for the Korea Shipbuilding and Engineering Corp (Newsreview, April 30, 1988, 14). The government announced its bailout offer in 1989. The South Korean government approved a $1 billion rescue package for three of the five largest shipyards. Daewoo Shipbuilding & Heavy Machinery Company, the nation's second‐largest shipyard, had debts totaling $1.94 billion and losses of $318 million in 1988 (Wall Street Journal, August 29, 1989). The bailout package gave Daewoo $600 million in interest‐free state loans and rescheduled its debt to keep it afloat. Under the plan, the state‐owned Korea Development Bank granted the company a moratorium on an existing loan of 250 billion won ($372.7 million), allowing it to pay in installments over 10 years after a 7‐year grace period. The bank also extended a new 150 billion won (about $224 million) loan. Daewoo likewise received tax exemptions and other benefits. The minister of trade and industry announced that neither the government nor the state‐owned Korea Development Bank, which held 33 percent of Daewoo Shipping, would put any new capital into the company (“South Korea Proposes a Loan, Rescheduling for a Daewoo Unit,” Wall Street Journal, March 28, 1989).

In another case, the Pan Ocean Shipping Company had outstanding debt at the end of 1986 reportedly amounting to 1 trillion won ($1.2 billion). The total assets of the company were valued at 948.5 billion won ($1.12 billion), although market watchers saw the value as much lower (Wang‐ky Kim, “Pan Ocean Shipping Co. Struggles to Stay Afloat,” Korea Herald, April 28, 1987). According to one newspaper report, Pan Ocean had 858.5 billion won ($1,012.5 million) in debt in 1987. It borrowed from the Korea Development Bank (467.1 billion won), the Bank of Seoul (136 billion won), the Korea Exchange Bank (97.9 billion won), the Cho Hung Bank (28.3 billion won), Korea First Bank (27.4 billion won), Hanil Bank (p.382) (16.8 billion won), foreign banks in Korea (20.9 billion won), and short‐term finance companies (39 billion won) (“Bank of Seoul Grants Pan Ocean Debt Moratorium,” Korea Herald, April 24, 1987). According to another newspaper report, seven banks (Development Bank, Bank of Seoul, Housing Bank, Foreign Exchange Bank, Trust Bank (Shintok), Cho Hung Bank, and Bank of Commerce) “illegally loaned 7.4 billion won to 18 corporations connected with Yong‐Bok Park, an operator of a shipping company. It was alleged that the borrower even forged a commercial letter of credit (Kyeong Hyang Shinmun, April 19, 1974). In addition to the loans, the company had to pay more than 100 billion won in interest annually, equivalent to one‐third of its operational income of 339 billion won in 1973.