State lenders launch fund to aid M&As to enhance Korean Inc. competitiveness

2019.08.07 11:35:12 | 2019.08.07 12:41:43

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South Korean state lenders will put up 5 trillion won ($4.1 billion) in a government-sponsored fund to finance mergers and acquisitions (M&As) that can raise competitiveness and resilience of Korean Inc. against outside risk factors such as trade barriers from Japan.

According to sources on Wednesday, the county’s top financial authority Financial Services Commission is arranging a M&A-devoted council with three state lenders – Korea Development Bank, The Export-Import Bank of Korea and Industrial Bank of Korea – to back M&As that can achieve economies of scale and global competitiveness for Korean enterprises.

IBK and Korea Eximbank will shell out 1 trillion won and 1.5 trillion won, respectively, for M&A financing and KDB 2.5 trillion won for business competitiveness. The council will invite global investment banks to facilitate the deals.

Priority will be given to companies seeking to enhance capabilities in materials, components and equipment, Korea’s weak spot exposed via the latest export curbs from Japan.

The funding plan is a part of the government measures against Japan’s export restrictions on dual-purpose items and technologies bound for Korea by stripping the nation of preferred whitelist status. Over 1,100 items falling under strategic and sensitive categories may have to be individually approved whenever they are shipped out to Korea, a process that could be delayed for months and disrupt production in Korea which heavily relies on Japanese supplies for mainstay exports.

The funding will first go to companies newly venturing into the materials and equipment segment and need M&As to start business.

In such case, up to 10 percent deductions in corporate income tax will be allowed until the end of 2022.

By Jin Young-tae and Lee Ha-yeon

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