By Lee Hyo-sik
Staff Reporter
The creditor-initiated corporate restructuring aimed at weeding out unhealthy businesses has been lackluster, with lenders fearing strong resistance from target companies and potentially huge non-performing loans as a result of liquidation.
In response, the government has decided to play a larger role in the ongoing restructuring drive, introducing a pre-workout program and setting up a 100 billion won private equity fund (PEF) to help cash-strapped businesses restructure themselves.
According to government sources Monday, an ad-hoc ``creditor coordination committee'' will be established to coordinate differences among creditors of firms that are subject to drastic restructuring
Currently, banks classify businesses, including construction firms and shipbuilders, into four categories ― A, B, C and D. Those who are placed in C will be forced to undergo a stringent workout, with companies in group D being liquidated.
Under the envisioned pre-workout program, those placed in B can also be subject to the creditor-initiated restructuring if they experience a temporary liquidity crunch. The government is considering revising the ``Corporate Restructuring Promotion Act'' to legalize the pre-workout scheme.
Strategy and Finance Minister-designate Yoon Jeung-hyun told lawmakers last week that restructuring should be handled primarily by creditor banks. But he also said the government should take all possible measures, including the revision of laws, to make preemptive restructuring of potentially struggling businesses possible.
Creditors have been criticized for their reluctance to drastically overhaul the struggling construction and shipbuilding industries. Out of 111 ailing builders and shipbuilders, they decided to cease supporting only two and subject a mere 14 to a debt-rescheduling program.
In response, the Financial Supervisory Service (FSS) requested creditors to tighten their standards for credit assessments and thus increase the number of firms subject to restructuring or liquidation.
To further facilitate this, the government and the state-run Korea Development Bank (KDB) will establish the roughly 100 billion won fund as early as March, planning to increase it to over one trillion won by attracting money from institutional and retail investors.
``The government will kick out nonviable firms as soon as possible and actively support companies that can turn themselves around with help from creditors,'' a government official said.
The fund will operate like a PEF; it will take over management of businesses grappling with a liquidity shortage, inject capital, turn them around, and sell the companies several years later for higher prices, returning capital gains to investors.