Exclusive-South Korea lining up banks to help finance $22 billion arms sale to Poland

(Reuters) – After hitting statutory limits on import-export lending, South Korea is gathering local banks to help Poland buy $22 billion worth of weapons in Seoul’s largest arms sale, five people familiar with the matter told Reuters.

“Five local banks are reviewing a syndicated loan as a support measure” to help Poland finance its purchase of South Korean rocket artillery systems and fighter jets, a South Korean government official said, speaking on condition of anonymity to discuss ongoing planning.

Two officials from a Korean defence company confirmed the syndicated loan plan. Two officials at South Korean banks said there would be loans, but did not specify the type.

It is the first indication that Seoul is working to remove Poland’s financing hurdles to enable the two countries to strike South Korea’s biggest-ever weapons arms deal, estimated at around 30 trillion won ($22.72 billion).

The discussions are a follow-up to the comprehensive arms agreement between the two nations signed last year, under which South Korean companies including Hyundai Rotem Co. and Hanwha Defense Systems Corp will supply tanks, howitzers and fighter jets.

That deal was worth $13.7 billion, South Korea’s largest to date.

The South Korean government official did not elaborate on the size of the potential syndicated loan. Such a loan is provided by a group of lenders to a single borrower, often to finance large deals.

The defence company official said that if the syndicated loan for the next proposed sale wasn’t enough, “there could be other financing measures on the way”.

South Korea’s defence exports totalled about $17 billion in 2022, according to its defence ministry, up from $7.25 billion a year before, as the war in Ukraine opened a door for Seoul’s weapons exports.

The 2022 arms deal with Poland established Seoul as a major player in global weapons exports, largely dominated by the U.S. and Russia.

Seoul is also seeking deeper security ties in Europe, an ambition with ideal timing for Poland, which borders Ukraine, as it ramps up arms imports amid tensions with Russia.

($1 = 1,320.4500 won)

(Reporting by Cynthia Kim, Seunggyu Lim; Additional reporting by Jihoon Lee; Editing by Josh Smith and Gerry Doyle)