Korea to create $7b restructuring fund

United Asset Management Company (UAMCO) – the agency responsible for managing non-performing loans – government-owned banks and commercial banks, and pension funds will make commitments to the KRW4 trillion master corporate restructuring fund. It will invest in multiple privately operated feeder funds, accounting for less than 50% of each one, and these will lead restructuring activities.

This mechanism is intended to replace the current model of creditor bank-led restructuring, which is seen as unsuited to a market where companies are relying less on bank loans in favor of issuing corporate bonds and commercial paper.

The announcement comes as the government faces criticism over an agreement that will see Korea Development Bank and Export Import Bank of Korea – two of the state-owned lenders identified as backers of the restructuring fund – inject KRW2.9 trillion into beleaguered Daewoo Shipbuilding & Marine Engineering. The deal is conditional on bondholders supporting a partial debt-for-equity swap.

Daewoo previously received bailouts during the Asian financial crisis in the late 1990s and in 2015. Hanjin Shipping was declared bankrupt in February after state-owned banks refused to provide any more support.

Under the new approach, banks will be required to revise their credit evaluation models and procedures so that troubled companies are restructured in a timely manner. Furthermore, where creditor-led workout programs prove to be ineffective, companies would turn to alternative schemes – either private equity buyouts or court receivership, according to a release from the Financial Services Commission.

A total of 45 private equity funds dedicated to restructuring are currently active in Korea, with total capital of KRW5.2 trillion. This equates to an average of KRW86.9 billion per fund, which is seen as insufficient to lead a corporate restructuring.

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• Topics
• North Asia
• Fundraising
• Credit/Special Situations
• Restructuring
• South Korea
• Distress