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South Korea to create state-backed ship financing company

A crane carries a container from a ship of Hanjin Shipping at Hanjin container terminal at the Busan New Port in Busan, about 420 km (261 miles) southeast of Seoul in this August 8, 2013 file photo. REUTERS/Lee Jae-Won/File Photo

SEOUL (Reuters) - South Korea said on Monday it plans to establish a state-backed ship financing company with an initial capital of 1 trillion won ($871.73 million) to help improve the financial health of Korean shipping companies.

The government would provide financing of 6.5 trillion won ($5.67 billion) in total so that local shipping firms could acquire new vessels, said a government statement.

The measures were announced to support struggling local shipbuilding and shipping industries following the collapse of Hanjin Shipping Co Ltd 117930.KS, which applied for court receivership in August.

Daewoo Shipbuilding & Marine Engineering Co Ltd 042660.KS, one of the world's three largest shipyards, all in South Korea, is currently suffering from a big drop in orders.

The trade ministry said Daewoo’s main creditor, state-backed Korea Development Bank (KDB), would take into consideration any future improvement in Daewoo’s operations and market conditions before potentially pursuing a sale or some other form of merger or acquisition of Daewoo.

As of now, there is no plan to sell Daewoo, a high-ranking financial regulator clarified in a press briefing on Monday.

New vessel orders won by South Korean shipbuilders between January-September fell by 87 percent compared to the same period in the previous year, steeper than a 72 percent drop in global orders, the trade ministry said.

The steeper drop in orders was partly due to a fall in domestic orders compared with competitors in Japan and China, a high-ranking trade ministry official told reporters.

($1 = 1,147.1500 won)

Reporting by Cynthia Kim and Joyce Lee; Editing by Sam Holmes