S. Korea to change accounting rules for shipbuilders

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SEOUL, Oct. 22 (Yonhap) -- South Korea's financial watchdog said Wednesday it plans to revise accounting rules for local shipbuilders as the sliding local currency is feared to erode their balance sheets.

Most South Korean shipbuilders, led by Hyundai Heavy Industries Co., sold dollar
forwards to hedge risks after winning contracts. But with the value of local
currency having fallen more than 30 percent against the greenback so far this
year, the value of foreign exchange losses related to currency forwards have
snowballed.
Currently, shipbuilders have to deduct from their capital base any valuation
losses arising from dollar forward deals on their books. With the won's steep
fall, these kinds of losses will increase, forcing some shipyards to face
possible capital erosion in their balance sheets even though their overall
financial health remains sound.
"To help shipbuilders offset such losses, the watchdog plans to allow them to
reflect foreign exchange gains stemming from ship contracts in their books," the
Financial Services Commission (FSC) said in a statement.
The FSC expects the move to help shore up shipbuilders' balance sheets and
sharply lower their debt ratio, it added.
Under current regulations, shares of a company are delisted from the stock market
if its capital is completely wiped out as of the end of the fiscal year.
South Korea, home to seven of the world's top 10 shipyards, secured record orders
both last year and this year because of strong demand for crude carriers and
offshore exploration equipment amid high oil prices.
sooyeon@yna.co.kr
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