S. Korea to create $7bn fund to promote PEF-led restructuring

2017.04.14 09:28:33 | 2017.04.14 13:42:15

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The South Korean government will introduce a new restructuring fund as part of efforts to encourage an active role of private sectors in restructuring cash-strapped companies.

The Financial Services Commission (FSC) on Thursday announced to create an 8 trillion won ($7.08 billion) worth restructuring fund with investment from both public and private sectors over the next five years. With the fund, financial authorities aim to promote restructuring of financially ailing companies by private equity funds (PEF).

The announcement comes at a time when criticism is growing over the decision to offer additional financial support for sinking Daewoo Shipbuilding & Marine Engineering by the state-run lenders and its major creditors. Currently in Korea, corporate restructuring is mainly led by creditor banks - mainly state-owned financial institutions - that hold debts.

By allowing the private sector to inject funds in financially troubled companies, the government expects the struggling companies would gain an opportunity to stand back on its feet while PEFs would profit by reselling the reorganized companies at higher prices.

There are already about 45 corporate financial stability PEFs in the country, but each fund’s size is not big enough to effectively lead corporate restructuring. A total value of 45 funds amounted to only 5.2 trillion won as of the end of last year, with the average size per fund of 86.9 billion won.

The new restructuring fund that will be launched in the second half of this year is expected to be formed in a master-feeder arrangement where a master fund matches about 50 percent of feeder funds.

Korea’s major policy financial institutions - United Asset Management Company (UAMCO), Korea Development Bank (KDB), Export-Import Bank of Korea (Eximbank), and Industrial Bank of Korea (IBK) - will each invest 1 trillion won in the master fund in the form of capital call. Korea Growth Investment Corp. has been named as master fund manager.

A feeder fund will be formed for either an ailing individual company or industry and a total value of feeder funds will be 8 trillion won. Through the master fund`s matching investment, the government plans to attract private investment.

The new corporate restructuring plan aims to diversify restructuring measures through the capital market, said FSC Chairman Yim Jong-yong adding that in the long term, the government will promote private sector-led corporate reform that has been mainly led by the government.

By Chung Seok-woo

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