Gov't to loan W 5 tril. to key industries' small partner firms

Deputy Prime Minister and Finance Minister Hong Nam-ki speaks during a meeting at the Seoul Government Complex in Gwanghwamun, Friday. Yonhap

Loan, guarantees and maturity extension allowed to auto part makers

By Lee Kyung-min

The government decided to offer 5 trillion won ($4.1 billion) in loans for ailing domestic parts suppliers to the country's top-tier conglomerates for use in automotives, airplanes, steel and ships crucial to the country's economy.

The government also plans to offer an additional 2 trillion won assistance budget to small- and medium-sized vehicle component manufacturers including loans, guarantees and maturity extension. The relief meaures seek to help local car component suppliers in dire straits since the closure of Hyundai's car factories in South Korea due to the spread of COVID-19.

Eligieble for the state support will be seven government-designated key industires including airlines, equipment, energy, shipbuilding and marine, vehicle manufacturing, telecommunications and semiconductors. Companies whose financials had long been deteriorating before the outbreak of the pandemic will be excluded from the relief measure. Funds assisted will be limited for use in financing operations, and not to pay off loans.

“The government expects the emergency measures will help small businesses in dire need of prompt financing assistance,” Deputy Prime Minister and Finance Minister Hong Nam-ki said during a ministerial-level meeting at the Government Complex in Gwanghwamun, Seoul.

The government is set to distribute 5 trillion won starting late July via primary collateralized bond obligations (P-CBOs) issued by a special purpose vehicle (SPC) set up with 1 trillion won drawn from a 40 trillion won fund. The Financial Services Commission (FSC) set up and operates the fund to stabilize the liquidity shocks experienced by the virus-hit industries.

The P-CBOs, a kind of asset-backed securities (ABS), will comprise a pool of underlying assets including debt obligation bought from banks that lend money to SMEs. Half of the top-grade (AAA) P-CBOs will then be sold to private investors. Of the other half, 30 percent in middle-grade (BBB) securities will be held by state lenders including Korea Development Bank (KDB), 15 percent by the FSC-operated fund and 5 percent by SMEs.

The government plans to run the program for at least six months.

Eligible for the 2 trillion won assistance are low- and mid-credit car parts makers. At least 1.65 trillion won in loans will be offered by state-lenders including Korea Development Bank (KDB), Export-Import Bank of Korea (Eximbank), Industrial Bank of Korea (IBK) and Korea Asset Management Corporation (KAMCO).

A 350 billion won fund managed by KDB and IBK will be used to help partner firms for which automakers requested prompt and imminent assistance. A 270 billion won credit guarantee fund will be set up with contributions of 10 billion won from central and municipal government bodies as well as 8 billion won from automakers.

Hyundai Motor said it will offer 120 billion won to advance the initiative. The automotive group said it will give 100 billion won to the KDB- and IBK-managed 350 billion won fund and 20 billion won to the credit guarantee fund.

The meeting also covered issues on how to better facilitate overseas business activities. Korea's special entry agreement with China will be expanded to Singapore, the United Arab Emirates and Vietnam. The government is also reviewing the possibility of granting a waiver to the required 14-day self-quarantine for travelers coming back from business trips in countries with low COVID-19 infection rates.

Meanwhile, First Vice Minister of Economy and Finance Kim Yong-beom denied that the government has set up a special taskforce to accelerate corporate restructuring.

“The ongoing corporate restructuring drive has been and will continue to be three-pronged,” he said during a briefing at the Seoul Government Complex.

“The degree of state support will be conditioned on each firm's efforts to improve sustainability including workers' job security and profit sharing following corporate profit recovery. The support will be given to firms that have exhausted all other options before seeking government help, a requirement that shows corporate responsibility. Shareholders and parties of interest should equally shoulder pain and mostly reduced profit.”