Sungdong Shipbuilding & Marine Engineering says it is getting back on track after reaching an agreement with its banks to overcome refund-guarantee problems, which will secure the future of most of its recent orders.

Creditors, led by Woori Bank, have stepped in with a financial package that will see the banks inject around KRW 90bn ($74.8m) into the yard and help it issue refund guarantees for nine newbuildings.

But the move is likely to spell the end of Sungdong’s reputation for offering “cheap” newbuildings.

Sungdong executive vice-president Bonick Koo of the ship sales and legal division says the problems with refund guarantees came about as all the financial institutions in the country, with the exception of the Export-Import Bank of Korea (Korea Eximbank), stayed away from the shipbuilding sector after the market collapsed two years ago.

“Sungdong was the first shipyard in the country to contract newbuildings last year and we had no problem getting refund guarantees from [Korea Eximbank] for those 14 ships,” said Koo. “However, when more newbuilding deals were inked this year by other shipyards, [Korea Eximbank] could not cope with the demand and it was reluctant to issue them. This affected us and our company’s cash flow.”

Koo says his company’s banks understood Sungdong’s plight and offered voluntary assistance to the yard.

Koo claims Sungdong is not the only domestic yard encountering these problems, adding that most of the small and medium-size builders have also had a challeging time with the exception of leading shipbuilders such as Hyundai Heavy Industries, Samsung Heavy Industries and Hanjin Heavy Industries & Construction.

“They are big conglomerates and they have the means to get banks to issue the refund guarantees,” he said.

Sungdong has been one of South Korea’s most successful yards, winning orders since the financial crisis, but some say its success was due to it cutting prices to Chinese levels.

A broking source says Sungdong’s prices have been around 8% less than major Korean shipbuilders such as Hyundai and Daewoo Shipbuilding & Marine Engineering.

He adds that Sungdong’s price will no longer be “cheap” as the banks that have come to its aid have said that its prices need to be more in line with market levels.

Sungdong says that under the management improvement plan with the creditor banks, its activities will be monitored by an agent appointed by the banks. However, there will not be any changes made to the yard’s management team and its operations.

“When Sungdong enters into this agreement, our shipyard will need to report our activities to the banks and we also need to get their approval for the new contracts we are going to seal,” said Koo.

“Overall, this will be a good move for the company and it will help to get rid of the uncertainties that the industry has regarding Sungdong.”