Corporate debt issue highlighted

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Corporate debt issue highlighted

The government will accelerate efforts to restructure corporate debt to prevent it from spilling into the national economy, the country’s economy chief said on Thursday.

“There is an increasing number of zombie companies in industries such as steelmaking and shipping that are experiencing investment surplus problems, and those companies are affecting normal businesses, too,” Choi Kyung-hwan, deputy prime minister for the economy, said at the meeting. “The government will handle restructuring of such companies as early as possible.”

The minister also said the government-led corporate restructuring system should be able to take preemptive action against unpredictable market conditions that might be triggered by terrorist attacks.

Earlier this month, the government identified 175 small and medium-size enterprises that needed restructuring, part of efforts to prune the country’s debt-ridden companies. The announcement came after the financial sector was rattled by enormous losses reported by Daewoo Shipbuilding & Marine Engineering, the world’s second-largest shipbuilding company.

The government will oversee restructuring of major industries in a manner that doesn’t directly get involved but that gives advice and guidelines. Rather than creditors, the government will help increase the autonomy of individual companies.

“For industries that sensitively respond to economic conditions, the government will make objective assessments on industry conditions and will encourage troubled companies to take self-correcting measures for restructuring debt,” the Finance Ministry said in a statement. “Since the aggregate debt amount has grown too big, it is impossible for creditors to solve the problem on their own.”

The state-run Export-Import Bank of Korea and the Korea Development Bank, which have been guaranteeing debt or lending money for a number of local businesses as creditors, are also facing risks of soured bonds as the number of zombie companies rose and the total debt soared. The government, however, judged that those creditors are not effectively helping restructuring of troubled companies.

“Companies that are considered capable of recovering will be supported by the government to come up with self-help measures, while those deemed impossible will be quickly cleaned up,” the ministry report said.

The government will conclude assessment of credit risks of local conglomerates by the end of the year and select ill-performing companies that need restructuring.

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