Authority for restructuringDongbu Group’s liquidity woes derive from a typical weakness of Korea Inc. - a phobia of restructuring. If a company becomes weak, it must regain its health from a new diet and rehabilitation. But financial creditors and companies are often opposed to the idea and want to put off major corporate changes for as long as possible. The more restructuring is delayed, the bigger corporate debt gets. The mess then spills over to the financial sector and economy. It is necessary to establish an authority on corporate restructuring. Korea was able to rebound from the late 1990s financial crisis and repay its international debt quickly because the financial authority spearheaded a corporate reform campaign.
State monitoring of corporate activities has weakened in recent years. Since President Park Geun-hye’s administration took power last year, many well-known businesses such as STX and Tongyang have gone bankrupt. The financial woes of chaebol have worsened since the last administration because they have put off restructuring. State-run Korea Development Bank, which offers loans to large companies, last year incurred a deficit for the first time in 13 years. Other large banks also have been hurt by the insolvency of large companies.
Though businesses are suffering, financial authorities, creditors, and companies are busy blaming one another rather than working to find a solution to corporate problems. Dongbu’s liquidity crisis worsened because the company and its creditors dragged their feet for too long. The group blames creditors for having insisted on selling the Dongbu companies as a package instead of breaking them up and seeking individual buyers. Creditors blame Dongbu for withholding its stronger units. The financial authority, which should have acted as a mediator, has stayed on the sidelines.
The problem is that many other, like Dongbu, are on the verge of collapse. Nine in the large corporate category - Halla and Hyundai units and Hanjin Heavy Industries - have been added to the Financial Supervisory Service’s watch list for recommended debt restructuring, raising the total to 14. Few businesses are safe except for Samsung and Hyundai Motor. Corporate credit ratings are continually downgraded and many are up for sale. The corporate sector needs dramatic changes and yet few reach agreement on how they can be sold. Since debt restructuring is so hard, broader industrial overhauls such as mergers in shipping and steel cannot be attempted. Removing weak businesses can make the economy flexible. We need a strong watchdog to command corporate restructuring.
JoongAng Ilbo, June 30, Page 30