Overseas projects face stricter rules for loans

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Overseas projects face stricter rules for loans

While there are growing debates on how state-run financial companies should finance the restructuring of the debt-ridden shipbuilding and shipping companies, some of these companies have adopted a stricter evaluation system before approving large loans.

The Export-Import Bank of Korea (Korea Eximbank), Korea Development Bank and Korea Trade Insurance Corporation announced on Wednesday that starting next month, they will evaluate the profitability of major overseas construction projects before approving a performance guarantee.

The performance guarantee is a mandatory financial contract needed when applying for a major overseas construction project. Under the contract, the financial company pays a certain amount to the client if the company that won a project fails to deliver.

The companies that will be under review will be those participating in overseas construction projects worth more than $500 million, or where more than three Korean companies are competing for a bid where the project is valued between $300 million and $500 million.

A committee made up of experts from state-run financial institutions as well as outside experts will oversee several points, including overseas market conditions, risks, clients and contract terms.

However, companies that are participating in an international consortium or a joint company will not be subject to the evaluation.

“The new measures are to prevent insolvent orders from the overseas construction, plant, shipping and marine businesses while securing the loan soundness of state-run financial institutions,” a Korea Eximbank official said. “While exports continue to struggle, such measures will help Korean companies enhance their export competitiveness in the long run by encouraging fair competition.”

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]
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