Korea Ocean Business Corp. backs small carriers with W75b guarantee — and plans W1.1tr push

Acquiring a new vessel is a steep hurdle for small shipping companies that lack the capital needed in an industry where a single ship can cost hundreds of billions of won. Korea Ocean Business Corp. backed the construction of a 22,000-ton cruise ferry through a debt guarantee, and after the ship entered service helped the operator refinance its dollar-denominated loan into yen, cutting annual financing costs by 1.7 billion won. The agency now plans to expand such support for small carriers to 1.1 trillion won over the next five years.

According to Korea Ocean Business Corp., the Panstar Miracle — which operates between Busan and Osaka, Japan — was priced at $70.5 million. Panstar covered 20 percent of that, or $14.1 million, from its own funds and raised the remaining 80 percent, or $56.4 million, from financial institutions. Korea Ocean Business Corp. guaranteed up to $53.58 million of that debt, equivalent to about 75 billion won ($55.9 million), or 95 percent of the financed portion.

The Panstar Miracle is the first cruise ferry built at a domestic shipyard. At the time, there was no precedent for constructing a large cruise ferry in South Korea, making it difficult to secure the necessary funding through private financing alone, the agency said. Korea Ocean Business Corp. provided a debt guarantee on the dollar loan in December 2022. The vessel was delivered in April last year and deployed on the Busan–Osaka route.

After the ship entered service, the agency also helped restructure the loan's currency. Last month, Korea Ocean Business Corp. supported a refinancing that converted the Panstar Miracle's dollar-denominated loan into a yen loan carrying a lower interest rate — the first time the agency has provided a debt guarantee denominated in yen.

Panstar Miracle financing structure (Source: Korea Ocean Business Corp.)

| Item | Details | |---|---| | Vessel price | $70.5 million | | Panstar's own funds | $14.1 million (20%) | | Financing from institutions | $56.4 million (80%) | | Korea Ocean Business Corp. guarantee | Up to $53.58 million (about 75 billion won) | | Outstanding balance converted to yen | About 70 billion won | | Interest rate reduction | More than 2.5 percentage points | | Annual interest savings | About 1.7 billion won | | Projected savings over 4 years | About 7 billion won |

As of late last month, the benchmark rate on the dollar loan stood at 3.80 percent, while the yen loan rate was 1.56 percent. Based on the remaining loan balance of about 70 billion won, the borrowing rate fell by more than 2.5 percentage points. Korea Ocean Business Corp. estimates that Panstar's annual interest burden will decrease by about 1.7 billion won, and by about 7 billion won over the remaining four-year guarantee period.

The structure also takes advantage of the fact that Panstar earns yen on the Busan–Osaka route. Revenue in yen from cargo and passenger transport can be applied directly to repaying the yen loan without first converting it to won or dollars, reducing both currency risk and exchange costs. The agency has in effect moved beyond simply guaranteeing loans at the construction stage to adjusting financing terms in line with actual operating conditions after a vessel enters service.

The Panstar Miracle is one example of Korea Ocean Business Corp.'s broader effort to extend policy financing to small carriers. Since its launch in 2018 through the end of June this year, the agency has approved a cumulative 17.5 trillion won in financial support for shipping and logistics companies. The scope of support has also expanded beyond vessel purchases to include business stabilization, conversion to eco-friendly vessels, and port and logistics operations.

Support has not been concentrated solely on large ocean carriers. Excluding HMM, the agency's financial support totals 12.7 trillion won.

"We have provided 12.7 trillion won in support even excluding HMM," said Bae Jong-yun, head of the ESG performance team at Korea Ocean Business Corp. "We will continue to broaden the industry's base by extending support to small and mid-sized carriers."

Support for vessel acquisition by small carriers has been growing. Since its founding, the agency has provided 914.6 billion won to help 28 small carriers finance 65 vessels. From 2018 to 2021, it supported 27 vessels with 298.5 billion won; from 2022 through May this year, it supplied 616.1 billion won for 38 vessels — a 106 percent increase over the earlier period. Of that total, 388.7 billion won was channeled through the first special support program for small carriers, introduced in 2022.

Korea Ocean Business Corp. small-carrier vessel financing (Source: Korea Ocean Business Corp.)

| Category | Scale | |---|---| | Small carriers supported | 28 companies | | Vessels supported | 65 | | Cumulative support | 914.6 billion won | | 2018–2021 | 27 vessels / 298.5 billion won | | 2022–May 2026 | 38 vessels / 616.1 billion won | | First special support program | 388.7 billion won | | Second special support program | 1.1 trillion won |

The role of small and short-sea carriers is particularly prominent on the Korea-Japan route, where freight rates have remained relatively stable even as global shipping markets have swung sharply.

An analysis by Korea Ocean Business Corp. using its own container freight index, covering January 2024 through August this year, found that rates on the US West Coast route fluctuated by an average of 7.59 percent per week. The Korea-Japan route's weekly variation was limited to 1.39 percent. Over the same period, the gap between peak and trough rates reached 4.34 times on the US West Coast route, compared with just 1.42 times on the Korea-Japan route.

Behind that stability is transshipment cargo moving through Busan to destinations around the world. Transshipment involves transferring cargo from one vessel to another at an intermediate port for onward delivery to its final destination. In the first half of this year, 1,123,364 twenty-foot equivalent units of container cargo moved on the Korea-Japan route. About 68 percent of that volume either transferred at Busan to other vessels bound for ports worldwide, or arrived from overseas via Busan on its way to Japan.

Korea Ocean Business Corp. attributes the rate stability to the nature of transshipment cargo, much of which involves long-term, repeat transactions with global carriers that help dampen sharp rate swings.

Japan's port structure also plays a role. While cargo entering Japan is spread across multiple ports, large volumes concentrate at Busan. Busan handled 24.4 million TEUs of container cargo in 2024 — about 1.56 times the combined 15.62 million TEUs processed by Japan's five major container ports: Tokyo, Yokohama, Kobe, Nagoya and Osaka. That dynamic underscores the need for small and short-sea carriers that make frequent runs between Busan and ports across Japan.

"Toll costs in Japan are very high and there is a shortage of trucks, so the overall cost structure is higher than in South Korea," said Jeong Gyeong-nam, deputy director of the planning and coordination office at Korea Ocean Business Corp. "For shippers in Japan, routing through Busan rather than Tokyo or Osaka can be advantageous in terms of both cost and service."

Korea Ocean Business Corp. plans to further expand financing for small carriers seeking to acquire vessels. In June, it launched a second special support program for small carriers, with a plan to provide 1.1 trillion won over the next five years. The program broadens eligibility beyond existing small carriers to include newly mid-sized carriers that were classified as small and medium-sized enterprises within the past two years, as well as tugboat and pilotage operators.

The program recognizes financing of up to 80 percent of a vessel's price, with investment and guarantees each capped at 40 billion won per vessel. Interest rates are reduced by 0.3 to 0.6 percentage points depending on credit rating. The agency also covers up to 10 million won per case for external feasibility reviews.

Interest support on operating funds is also available. Small carriers recommended by Korea Ocean Business Corp. that borrow from Industrial Bank of Korea receive 2 percent annual interest support for up to three years. Loan limits are set at 3 billion won for carriers operating international routes and 1 billion won for domestic route operators.

The agency is also pursuing funding channels beyond bank loans and guarantees. A notable initiative is fractional vessel investment, which allows multiple investors to jointly fund a single ship, creating a new source of capital for carriers. Korea Ocean Business Corp. is working toward listing its first pilot project on the Korea Exchange in November, in step with the financial authorities' regulatory groundwork for the scheme.

"Traditional ship financing works by having a bank lend money and a guarantee institution back the loan," Bae said. "If fractional investment takes hold, carriers will have more avenues to raise funds."

Overseas, some public agencies reduce the upfront burden on carriers by co-owning vessels with them. Japan's Railways Construction, Transport and Technology Agency operates a system under which it jointly builds and owns vessels with shipping companies, allowing carriers to share costs with a public institution rather than bearing the full vessel price from the outset.

However, no decision has been made to adopt a Japanese-style joint ownership system in South Korea. Korea Ocean Business Corp. is currently working to broaden small carriers' access to capital through investment, guarantees, interest support and fractional investment, among other channels.

The roughly 75 billion won guarantee on the Panstar Miracle began with a single vessel. It was followed by support to refinance the dollar loan into yen, easing the interest burden. Korea Ocean Business Corp. plans to extend this kind of policy financing across small and coastal carriers more broadly.