Restructuring dragnet snares builders

Creditor banks chose 36 companies to undergo restructuring after conducting credit evaluations on them, the Financial Supervisory Service (FSS) said yesterday.

According to the financial regulator, creditor banks evaluated the financial soundness of 1,806 large companies and scrutinized the debts of 549.

Companies that owe local banks more than 50 billion won ($43.9 million) and have received a rating of C or less during the lenders’ financial reviews were picked, the FSS said.

Among them, 15 received a C rating and 21, a D rating. The former will normalize their operations via debt-workout programs assisted by creditor banks, but the latter group is likely to enter court receivership.

Most of the companies are in the construction and shipbuilding, but regulators have declined to name them to avoid panicking investors.

Construction felt the brunt of the move as 17 of the 36 companies on the list belong in this industry, followed by semiconductors, displays, shipbuilding and merchant shipping.

The number of companies selected for restructuring edged up from 32 last year, but was still a major improvement from 89 in 2009 and 65 in 2008.

The FSS said it will ask banks to refrain from collecting debts from companies with a C rating until they begin their workout procedures.

The 36 companies took out a combined 4.8 trillion won in loans. Of this, the lion’s share came from local banks (4.1 trillion won), followed by 270 billion won from insurance companies and 130 billion won from savings banks.

“We estimate that banks need to shore up an additional 1.1 trillion won in bad debt reserves to facilitate the corporate restructuring,” said Choi In-ho, an FSS official.

“The announcement will have a limited impact on the financial soundness of banks given that they are well-positioned to absorb losses.”

By Kim Mi-ju [mijukim@joongang.co.kr]