Home Shipbuilding Credit Guarantee Scheme (Hansard, 13 June 1996)

§ Mr. Eggar

The review of the scheme, which I announced to the House on 15 March 1995, has now been completed.

I have decided that the scheme should continue. When the Organisation for Economic Co-operation and Development shipbuilding agreement comes into force, the currently subsidised interest rate of 7.5 per cent. will be replaced by the appropriate commercial interest reference rate used in export finance. The scheme will continue to provide credit for up to 80 per cent. of a ship's contract value, the maximum permitted by OECD rules.

I have also decided to make an amendment to the scheme designed to enhance the scheme's attractiveness in appropriate cases. I have invited main banks involved in shipping business to participate in arrangements which would come into play when the terms offered under the scheme are not able to provide 80 per cent. financing on the basis of the vessel's mortgage and other readily available security, and it is felt that, by the standards of the international market place, better terms should be possible. In such circumstances, the new banking facility would aim to provide an additional tranche of financing. The DTI and the participating bank would share the risk in this additional tranche, normally on a 50–50 basis, although in some circumstances my Department would be prepared to take two thirds of the risk if necessary to secure 80 per cent. financing. Additional margins would be charged to reflect the additional risk undertaken.

This new banking facility will come into effect as of the date of this announcement. Applications for loans under the scheme, for which offers have not yet been made, will also be eligible.

The changes to the current interest rate offered under the scheme will be made with the entry into force of the OECD agreement presently targeted for 15 July. The success of this new banking facility will depend on the response from the banks. However, I believe that it is a valuable development of the scheme and responds to the concerns of the shipbuilding industry.