Progress on Corporate Restructuring

 

moneyIt is true that Korean economy shows quicker recovery than any other OECD countries, but we can’t be so relieved since risky factors still exist such as slow improvement of export situation. Still, a lot of major developed countries show delayed economic recovery, threatening Korean market which relies much on export.

 A corporate restructuring is one of the strategies to remove recovery-disturbing factors, a policy which will result in facilitating effective fund liquidity. Accordingly, recognizing the necessity of restructuring, the Korean government discussed current progress and determined future plans of corporate restructuring throughout the President-led economic policy meeting on Sept. 3.

  Now, let’s see the details.

 Current Progress of Corporate Restructuring

 Restructuring of Conglomerates

– Contractual agreements on improvement of the financial structure with the nine conglomerates: intensive self-rescue plans including subsidiary restructuring, asset dispositions, and capital expansions

– Reviewing and encouraging the self-rescue plans through the main creditor banks

 Industry-Specific Restructuring

– Given the first consideration to construction, shipbuilding, and shipping industries regarded as primary insolvents, 46 of the 277 companies were selected for restructuring.

– Most of the creditors and the workout companies have concluded MOUs, rescheduling debt and implementing self-rescue plans; 6 companies have already been normalized.

  Restructuring of Large Individual Companies

– According to the Corporate Restructuring Promotion Act, creditor banks conduct annual credit risk evaluations on large companies with credit obligation of up to KRW50 billion; the evaluation was conducted earlier, June 10, and stricter this year than before.

– Concrete implementation based on the evaluation; 2 of 22 companies have graduated from workout.

 Restructuring of SME

– Stronger risk management and evaluation & Continuous support of funds.

– Credit risk evaluation for three times until the end of November this year.

   Though the policy seems like a close and tight net to select workout companies, there are several trials and errors, but some countermeasures also exist.

 Issues & Countermeasures

 Selection Process Stage

Possible permissive evaluation of credit risk caused by deterioration in actual results of banks and by expectation of economic recovery

-> Reviewing the ability to absorb deficits & Encouraging stricter evaluation

 Restructuring Stage

Possible delays in restructuring caused by different views among creditors & Bottlenecks in issuance of guarantees

-> Preparing supports as many as possible only if they would not lead moral hazard: Raising the Vessel Fund & Reducing required loan-loss provision when creditors extend new capital to workout companies

  Korea appears to have been wisely dealing with the given situation. David A. Wyss, a chief economist of S&P also said on Yonhap News that Korea is doing well. However he also commented that the recovery could be slow down and global economy possibly went back to recession.

Then how does Korea prepare for the uncertain future?

 Future plans of restructuring

 Global Recession– Prompt conclusion of ongoing restructuring

– SME credit risk evaluation & interim conglomerate evaluation

– Disposition of NPL’s from restructuring progress: Lowering insolvent obligation to 1% until the end of this year

– Regular improvement of systems to aid restructuring: Raising funds & Stimulating M&A

 

 As China extends its economy by importing plants, Korea and Japan have become its main suppliers. In addition to this fact, several indexes indicate that Korean market will be quickly normalized. To escape from global recession, not only prudent exit strategy but also proper aftermath management should be conducted. For the stable recovery process, it is important to carry out strict corporate restructuring without carelessness.

  Let’s keep watching how Korean industries get healthier and how Korea defeats global recession~!

Advertisements

About FSC Korea
The Financial Services Commission has been established for the purpose of protecting the integration of Korea’s financial markets by promoting sound credit system and fair business practices. To this end, the FSC serves as a consolidated policy making body for all matters pertaining to supervision of the financial industry as a whole. To raise the efficiency, the posts of the FSC Chairman and the FSS Governor were separated on March 2008 for clear distinction between policy-making and execution of financial market supervision

5 Responses to Progress on Corporate Restructuring

  1. DennisVega says:

    There’s good info here. I did a search on the topic and found most people will agree with your blog. Keep up the good work mate!

  2. Tnelson says:

    Generally I do not post on blogs, but I would like to say that this post really forced me to do so, Excellent post!

    • dorsay says:

      Thank you !!! I hope you can more easily understand things happening in Korea with this. Please visit more, I will keep posting on this issue later on. 🙂

  3. Issac Maez says:

    Thamks for the great post. I always try to bookmark financial or credit related posts like this one.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: