Bailouts - a team approach
The guidelines for restructuring construction and shipbuilding companies are on the table. Creditors intend to distinguish the gems from the stones by comparing debt ratios, numbers of unsold apartments and total orders at targeted companies. We say better late than never.
The Korean economy’s current problems are largely attributed to the two industries. With a construction bubble and booming shipbuilding industry, construction firms and shipbuilders borrowed and invested enormous amounts of money, but the finances of many such firms are now suffering due to unsold apartments and a lack of orders.
Restructuring, which helps viable companies but liquidates those with no hope, is a price to pay to revive the economy. Out of consideration to the companies to be liquidated and their employees, the process needs to be transparent.
Creditors may as well lead restructuring. Past attempts by the government had side effects such as illicit relationships with companies, but restructuring led by the private sector after the Asian financial crisis did not have such problems.
Principles must be protected but the speed of restructuring needs to be faster than it is now. President Lee Myung-bak has declared an economic emergency, and restructuring should be approached with a similar attitude. The government should provide as much support as it can to expedite private sector-led restructuring.
A while ago, creditors decided to help C&Heavy Industries, but they did not follow through on their decision because of a differences in opinion among creditors. This should not happen again.
This is not to twist creditors’ arms. If necessary, the government should intervene. However, what is urgent is to have the right restructuring environment. Construction and shipbuilding companies have complicated debt structures. The problem related to C&Heavy Industries was whether to regard secured debt, like hull guarantee insurance, as regular debt.
When it comes to construction companies, there will be debates over whether funds invested in project financing can be considered regular debt. Creditors cannot deal with such issues by themselves. This needs to be done by the government. At this time, the government should empower the creditor adjustment committee. Not only should more personnel be added to the committee but also the right people should be appointed to do the work that is needed.