Korea to inject more money into markets over Taeyoung E&C's workout application

Finance Minister Choi Sang-mok, center, enters a meeting with financial policymakers in Seoul on Friday. [NEWS1]

The Finance Ministry said Friday it is ready to deploy additional liquidity facilities to address potential financial fallout and economic impact after Taeyoung Engineering & Construction (E&C)'s debt restructuring application Thursday.

The mid-sized builder applied for a debt workout program after suffering from a cash crunch due to project financing (PF) loans amid a property market slump.

"The creditors, centering on the main creditor, the Korea Development Bank, will discuss ways to normalize Taeyoung's management based on its intensive self-rescue efforts. The government and the Bank of Korea will make all-out efforts to minimize its impact on the economy and the financial market," Finance Minister Choi Sang-mok said in a meeting with economic policymakers.

The meeting brought together Bank of Korea Gov. Rhee Chang-yong, Kim Joo-hyun, the chair of the Financial Services Commission, and Lee Bok-hyun, chief of the Financial Supervisory Service.

Currently, the government operates liquidity supply programs of 85 trillion won ($65.96 billion) as a tool to stabilize the financial market, and it "will expand the programs further, if needed, to brace for possible market volatility in a preemptive manner," Choi said.

The government set aside 50 trillion won for liquidity facilities in October last year to calm market jitters over an impending liquidity and credit crunch surrounding the Legoland amusement park, and the amount has since risen to 85 trillion won.

Taeyoung E&C's workout application is feared to have repercussions on Korean construction companies with high exposure to real estate PF loans.

They have been reeling from sluggish apartment sales stemming from high interest rates, combined with soaring prices of construction materials.

Industry watchers voiced concern that nearly 23 trillion won in PF loans could turn sour amid the slumping housing market next year. As of the end of September, the country's total PF loans were estimated at 134.3 trillion won.

Delinquency rates of PF loans have been rising due to the sagging housing market, stoking concerns over the financial soundness of highly exposed borrowers and the stability of the overall financial system.

BY SEO JI-EUN, YONHAP [seo.jieun1@joongang.co.kr]