SEOUL: South Korea’s financial regulator said Friday it will charge a leading bad asset management firm with overhauling debt-laden companies in an effort to speed up the country’s corporate restructuring program.
The Financial Services Commission (FSC) said it scrapped its earlier plan to establish an independent company that specializes in corporate restructuring, funded by two policy lenders and commercial banks.
Instead, the FSC said it will assign the role to United Asset Management Company (UAMCO), which is co-owned by six of South Korea’s largest banks — Shinhan Bank, Kookmin Bank, Hana Bank, Industrial Bank of Korea, Woori Bank and NongHyup Bank.
The move came as major banks and two policy lenders, the Korea Development Bank (KDB) and the Korea Export-Import Bank, are suffering from massive losses stemming from the recent collapses of big businesses, including STX Group, Dongbu Corp. and Keangnam Enterprises. The KDB, for example, has 116 non-financial affiliates, following stake purchases of indebted companies through debt-for-equity swaps.
FSC Chairman Yim Jong-yong has called for tighter monitoring of mounting corporate debt, which could lead to a series of bankruptcies, as South Korea had experienced during the 1997 Asian financial crisis.
The regulator had first tried to have an independent entity take the leading role in corporate restructuring in a bid to speed up the process and help ailing companies stay afloat. But local banks asked the FSC to expand UAMCO’s business as they can utilize UAMCO’s labor force, experience and organization in dealing with debt.
“We accepted the banks’ request as we saw that the UAMCO plan is faster and more cost-effective than setting up a new company,” said Lee Myung-soon, director general for the Financial and Corporate Restructuring Policy Bureau at the FSC.
The KDB and the Korea Export-Import Bank will participate in the new UAMCO project by buying part of UAMCO shares from shareholding banks. UAMCO will raise 2 trillion won (US$1.7 billion), up from the current 1 trillion won, to carry out its new assignment, the FSC added.
Under the new plan, UAMCO will create a private equity fund to buy sour loans extended to a troubled company, which cannot pay off its debt, but has potential to swing back to the black after a tough restructuring.
UAMCO will run restructuring and downsizing programs to help the company get back on track. According to the FSC, the total value of bad corporate loans extended by banks reached 30 trillion won this year, with 18 trillion won owed by shipbuilders.
