By Park Hyong-ki
The government is seeking to encourage private equity or buyout funds to acquire and restructure companies facing cash flow problems, the Financial Services Commission (FSC) said Thursday.
This plan aims at increasing the participation of private investors from the capital market in the debt restructuring of companies that face near bankruptcy.
Following the latest debt crisis of Daewoo Shipbuilding & Marine Engineering (DSME), the financial authorities see a limit in restructuring such a company only with state-run creditor banks.
“We seek to follow the example in the United States where funds in the capital market and courts play a bigger role in the speedy corporate restructuring,” an FSC official said.
Creditor banks alone can no longer lead and pursue corporate restructuring when there are so many parties involved with investments in equities and debts, he added.
However, he added that the FSC realized that the local private equity market is too small to help such companies make a turnaround.
To address this concern, the regulator will help provide liquidity, creating a 8 trillion won fund with which private equity funds can share risk, and acquire and restructure companies.
“It would be difficult for private funds to raise capital for acquisition and restructuring given that the market here does not have a lot of records showing successful turnarounds through funds,” the FSC official said. “The regulator will seek to inject liquidity to launch a restructuring fund.”
Recently, the National Pension Service (NPS) has opposed to the government’s DSME debt bailout plan.
The NPS is the biggest investor of the shipbuilder’s debts. The FSC asked the NPS and other DSME investors to push back the company’s debt maturity, and agree to swap some of their debts into equities.
The NPS, which holds DSME corporate bonds worth 390 billion won, has been calling for the state-run Korea Development Bank to shoulder more financial burden. However, the policy bank refused the NPS request.