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By Anna J. Park
In a move to foster active corporate M&As to bring about economic innovation, the Financial Services Commission (FSC), the country's top financial regulator, has decided to ease the financial burden on potential buyers to prove their capital qualifications, when it comes to launching tender offers.
According to the FSC on Sunday, a potential corporate buyer will face less burdensome conditions, when it makes tender offers. Up until now, a potential tender offer buyer is required to prove their financial capacity by depositing the total amount of money necessary for purchasing targeted stocks at local institutions during the entire tender offer period.
As this requirement has often been criticized to be an excessive financing cost for potential buyers, the FSC will now acknowledge financial investors' letters of commitment (LOC), capital contribution agreements or investment agreements, as proof of a buyer's capacity to finance a tender offer, thereby, easing the previous requirement.
The move is one of many measures that the top financial regulator announced on Sunday in order to efficiently strengthen the economy's M&A framework.
"Corporate M&As are not only an important means for companies to achieve management efficiency and business restructuring, but also a way that raises the productivity of the overall economy and that facilitates economic recovery," the FSC said. "While a recent contraction of the local M&A market is attributed to deteriorating macroeconomic conditions, which cannot be solely controlled by the local economy alone, it still is paramount to overhaul and enhances the structural framework of M&A to foster further growth of the market," the top financial regulator explained.
With regard to split mergers, the FSC plans to streamline conversion procedures accompanying convertible bonds (CB) or bonds with warrants (BW). So far, the conversion of CB or BW has been conducted manually by each company, but it will now be transferred to the Korea Securities Depository (KSD) for electronic processing of them.
Similarly, to foster corporate M&As, securities companies that are equipped with a comprehensive financial investment business operator license will also be allowed increased refinancing loans for the purpose of M&As.
The top financial regulator also plans to raise an additional one trillion won ($750 billion) worth of corporate structure innovation funds, so that the Korea Asset Management Corporation (KAMCO) can provide liquidity for the goal of corporate M&As.
The Korean government is also supporting the strategic M&As of local companies in the area of state-of-the-art technologies and strategic industries. In order to facilitate acquisitions of this nature, the financial regulator provides diverse support, ranging from consulting and market surveys to overseas networks.
The FSC plans to complete revisions of necessary regulations by the end of this year, while the financial authority and the Ministry of Justice will jointly announce additional measures during the second half of this year to support corporate M&As.
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