Money will be drawn from the Fund to Supplement Capital of State-Owned Banks for the first time to provide liquidity for the Export and Import Bank of Korea in order to mitigate fears that its BIS capital adequacy ratio might drop below the standard limit.
The bank has had to provide additional funds to salvage Daewoo Shipbuilding and Maritime Engineering Co., which has been on the verge of bankruptcy due to liquidity problems. Government officials explained that the move will be taken to improve Eximbank’s funding in the wake of the provision of additional capital to the financially-troubled shipbuilder in cooperation with the Korea Development Bank (KDB) and one of its borrowers, Sungdong Shipbuilding, foreseen financial problems.
Daewoo Shipbuilding is said to need around 3 trillion won to keep it afloat and Eximbank would have to provide about 2 trillion won of that.
The bank received an infusion first because its financial condition is worse than KDBs, with the danger that its BIS capital adequacy ratio might fall below 10 percent.
Cash for Projects in Latin America
South Korea will offer a total of $1.1 billion won in policy funds to help support economic development projects in Latin America, the finance ministry said.
The ministry unveiled the plan at this year's Inter-American Development Bank board of governors meeting in Busan, saying that the money will help South Korean companies make inroads into various projects to be undertaken by Latin American countries.
Of the total, $1 billion will come from the country's low-interest Economic Development Cooperation Fund, with $100 million in special loans meant for infrastructure projects. Chairman Choi Jong-ku of Eximbank signed an agreement with the Ministry of Finance of Nicaragua to provide $70.59 million in EDCF loans to finance the Manama Circulatory Road Construction Project in Nicaragua during a meeting with Minister Ian Acosta Montalvan on the sidelines of the annual meeting of the International development Bank held in Asuncion, Paraguay, on April 1.
"The broad plan can promote economic growth in developing economies while at the same time expanding cooperative tie-ups between the region and South Korea," the ministry said in a statement, emphasizing that it is a win-win arrangement for all sides.
It is said that the Korean government plans to expand capital of up to 2 trillion won ($1.79 billion) for Korea Eximbank when Daewoo Shipbuilding and Marine Engineering (DSME) starts a free packaged plan (P-Plan) in case of failure of its self-regulating debt readjustment. It means that an additional 900 billion won ($805.01 million) of taxpayers' money will be injected from 1.1 trillion won ($983.9 million), which was estimated earlier. According to the financial authorities and creditors on March 30, the government recently re-calculated the amount of capital that Korea Eximbank needs from 1.5 trillion won ($1.34 billion) to 2 trillion won ($1.79 billion) when DSME introduces the P-Plan.
Previously, the government expected that the Korea Eximbank will be able to maintain its financial soundness when injecting 1.1 trillion won ($983.9 million) on the premise of debt readjustment with interested parties which own DSME’s corporate bonds. When DSME implements the P-Plan due to the failure in debt readjustment, the government needs to put 400 billion to 900 billion won ($357.78 million to $805.01 million) of more money than expected.
A senior government official said, “The Korea Eximbank will see its capital soundness get worse when DSME starts the P-Plan compared to the current conditional new fund support program.
The bank will need to raise capital by up to trillion won ($1.79 billion). The company inspected all the ship orders won by DSME and estimated the total amount of refund guarantee (RG) calls in order to calculate the amount of capital expansion for the Korea Eximbank in case of DSME introducing the P-Plan.
This was because it cannot finalize the amount of additional capital expansion without checking on RG calls since 7.2 trillion won ($6.44 billion) out of 10.2 trillion won ($9.12 billion) of the total exposures of the Korea Eximbank against DSME are RG.
(This article designed to promote public relations of Korea Eximbank)