Gov’t scraps restructuring firm plan

An ambitious plan to establish a government-backed restructuring firm has been scrapped due to opposition from banks that were supposed to invest in the new body, discouraging the government’s efforts for structural reform in the finance sector.

The Financial Services Commission, the top decision-making body in finance, said in a press release that the plan has been cancelled.

Instead, Uamco, a private firm established by local banks and specializing in non-performing loans (NPL) management and restructuring, will expand its role.

“Rather than launching a new firm specializing in corporate restructuring, we decided to expand and reform the current NPL management company, Uamco,” the press release read.

The new firm was an ambitious goal by the government to create a “market-oriented restructuring process.” The proposal was made because existing restructuring procedures drag on due to conflicts of interest among creditors, who are mostly banks, and there have been rising calls to exclude the government from the process.

Under the initial plan, the state-run Korea Asset Management Corporation and eight local banks were supposed to invest 1 trillion won ($856 million) in total from their own budgets and an additional 2 trillion won in loans. Specialists in restructuring and private equity funds were planned to be in charge of management and announce the official launch next month.

But banks expressed reluctance about the size of the investment required, and the regulator stepped back as a result.

“If we invest in the firm, our BIS ratio would significantly drop,” said an executive director at a local bank that participated in the project. “Developing Uamco is more advantageous for us in terms of both cost reduction and the use of our current workforce.”

Despite the scrapping of the body, the government still has irons in the fire when it comes to plans for accelerated restructuring, including a pending bill that would turn the temporary Corporate Restructuring Promotion Act into a permanent law.

In July, 23 lawmakers including Rep. Chung Woo-taik of the ruling Saenuri Party proposed the change. Adopted during the 1997 Asian financial crisis, the act allows a bankrupt company to be restructured if 75 percent of the financial institutions acting as creditors agree.

However, the act is only applied in certain cases. Most of the time, restructuring is only legally allowed when 100 percent of the creditors agree.

The Supreme Court opposed the revision, saying it would hinder the economy because of the influence the government has on financial institutions.

BY CHO MIN-GEUN, KIM HEE-JIN [kim.heejin@joongang.co.kr]