Gov"t Proposes Measure to Solve Mutual Guarantee Problem

The government is trying to solve the problem created by companies' mutual guarantee practices that chaebols employed between their own subsiduaries.
In Korea, in the case of a business group's companies, most companies use a mutual guarantee system between the same group companies(sister companies) as a means for borrowing money from financial institutions.
The cosy arrangement collapsed like a house of cards since the IMF bailout. Due to these practices, the liability ratio of Korean chaebols or conglomerates is much higher than that of other companies which do not belong to a chaebol or international company.
To solve the situation, the Financial Supervisory Commission (FSC) is planning to approve that companies with good operating records can change the guarantee for other subsidiaries into general loans through consultation with creditor banks.
The FSC also is considering introducing a way so that creditor banks can change some of the guarantees into equities of the company.
The FSC announced the proposed plan on October 23 as an additional measure for the already announced plan that requires companies with guarantees to resolve the guarantee or debt liability they have with companies belonging to the same conglomerate within the year.
Meanwhile, the government will exempt endowment taxes which occur when a company merges with another company as part of a restructuring plan.