The government plans to launch a special fund as early as March to facilitate the restructuring of companies suffering from temporary credit crunches or showing signs of financial trouble, according to Yonhap News Sunday.
The move comes as a growing number of local companies are experiencing cash-flow problems amid the global economic downturn that has dealt a harsh blow to the export-driven South Korean economy.
According to government officials, the government and the state-run Korea Development Bank plan to establish a roughly 100 billion won ($73 million) corporate restructuring fund in late March to fast-track the revamp of nonviable firms.
The government will seek to raise the size of the fund to more than one trillion won by encouraging institutional and retail investors to chip in, they said.
"The government will weed out nonviable firms as fast as possible and actively provide support to companies deemed able to turn around with the help of creditor institutions," a government official said on condition of anonymity.
The fund will take ove companies that are hard pressed for cash or placed under a debt rescheduling program, put them back on track, sell them off after two to three years and return profits to investors, he said.
South Korean companies, especially construction companies and shipbuilders, have been feeling the pinch of the sharp economic downturn.
In late January, local banks and non-bank financial institutions decided to end support for two ailing companies and reschedule debts at 14 others to keep potential defaults from jolting the slowing economy.
Since late December, the nation's financial watchdog has called on local lenders to accelerate the process of singling out unhealthy construction firms and shipbuilders as part of efforts to prevent a chain reaction of bankruptcies from placing a further burden the economy.
Battered by tumbling exports, South Korea, Asia's fourth-largest economy, is widely expected to post negative growth this year, compared with a 2.5 percent expansion last year.