State-run Korea Development Bank (KDB) and other creditor banks have decided to discuss an additional loan guarantee of 200 billion won ($175 million) for Hanjin Heavy Industries & Construction Co. as the shipbuilder faces a hurdle in building new specialty vessels like military vessels due to a loan guarantee rejection from local guarantee insurers.

KDB, the main creditor of the debt-stricken shipbuilder, will convene a creditor meeting next week to discuss the financial support that could be implemented this month.

The loan guarantee is inevitable to ensure stable shipbuilding, said an unnamed creditor bank official. More than two-thirds of the votes from creditors are required to pass the additional financial support. KDB wants to push for the guarantee despite opposition from other creditors considering the public nature of military shipbuilding, saying the future burden on creditors would be greater because quasi-state Korea Defense Industry Association and Seoul Guarantee Insurance are resistant to offer guarantee, while new orders for public vessels would continue on a shipbuilding industry normalization plan.

Following the government’s program to improve the industry released last October, Hanjin Heavy Industries sealed a deal to construct two high-speed landing ships for the Korean Navy late last year.

But Korea Defense Industry Association and Seoul Guarantee Insurance rejected offering loan guarantees for the shipbuilder because of its poor credit rating, leaving the dockyard to face challenges in raising funds needed for vessel construction.

Hanjin Heavy Industries that operates shipyards in Korea`s southern port city of Busan and in the Philippines entered into a creditor-led debt rescheduling program in January last year due to a protracted slump in global demand. Since then, it has received fresh financial support worth 250 billion won from creditors.

By Chung Seok-woo and Kim Jong-hoon

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