South Korean government will channel more than 1 trillion won ($829.7 million) from the 40-trillion-won state fund committed to protect key industries from virus fallout into automotive parts sector whose factory operation has more than halved due to the dearth of orders.
The decision was agreed in a meeting convened by Financial Services Commission chairman Eun Sung-soo and industry minister Sung Yun-mo.
So far airliners and shippers have been bailed out through the state fund.
To be eligible for the state relief fund, a company needs to have a minimum debt of 500 billion won and payroll of 300. The government decided to dole out 1 trillion won for the auto supply chain.
Experts anticipate the authorities to offer financial aids through bond purchase programs in primary collateralized bond obligations (P-CBOs), a type of security backed by corporate loans with a low credit rating that allows companies to finance money at low costs. The authorities reportedly are also discussing to provide debt guarantees.
As Korean automakers grapple with plunging demand under the pandemic, their woes have spilled over to their suppliers. Mando Corp., the country’s second largest auto parts maker with sales of 5 trillion won and over 12,000 employees, launched a voluntary early-retirement program for the first time since 2008. Other suppliers including Kumho HT Inc. and Daihan Calsonic Co. are also accepting redundancy program applications.
Currently, the operation rate of the auto parts suppliers hovers at 50 to 60 percent.
“The fallout of first-tier suppliers could not only lead to the collapse of second- and third-tier suppliers but also deal a heavy blow to the finished car makers, which in result would damage the whole auto industry,” said Lee Hang-goo, senior researcher at Korea Institute for Industrial Economics & Trade.
On the same day, the financial authority and trade ministry also revealed a plan of running a special debt guarantee program worth 300 billion won or more to aid small- and medium-sized auto parts suppliers.
Under the program, the Korea Credit Guarantee Fund will provide special debt guarantees to small companies with low credit ratings to make bank borrowings easier for them. For the funding of the program, the government and Hyundai Motor are planning to provide 10 billion won each. GM Korea and local governments reportedly are mulling to provide supports as well.
Meanwhile, SsangYong Motor Co., whose viability is in limbo after its Indian parent Mahindra & Mahindra cancelled investment plan and also suggested selling its stake, is bidding for 200 billion won survival aid from the state bailout fund. The automaker has 390 billion won in debt that must be repaid by March next year on top of growing losses.
The Korean government, however, remain cautious about providing aids to SsangYong Motor because the company’s liquidity crisis began before the pandemic, leaving the decision to be made by the committee managing the corporate relief fund.
By Choi Seung-jin, Baek Sang-kyung, Lee Jong-hyuk, and Cho Jeehyun
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]