Kamco’s Lease Back Program Helps Firms with Liquidity Problems
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Kamco’s Lease Back Program Helps Firms with Liquidity Problems
So far over 200 billion won worth of assets were purchased to help companies overcome liquidity problems since 2015

26(Tue), Sep, 2017

President Yoon Chang-yong of Korea Asset Management Corp. (KAMCO). (Photo: KAMCO)

Korea Asset Management Corp. (Kamco) Sales and Lease Back Program has completed 200 billion won worth of deals, Kamco said recently. The arrangement involves the company buying struggling business firms’ assets and leasing them back to the companies.

The program kicked off in 2015 to help the companies get over their short-term liquidity problems by buying assets like buildings and plants and leasing them back to them. Kamco said the deals under the program came to around 60 billion won annually until this year, but they rose to around 102.5 billion won with eight business firms as of Aug. 31 to bring cumulative deals to 222.5 billion won, helping them solve their short-term liquidity problems. 

Since 2015, Kamco has helped 16 firms.

Kamco said the increase is related to a revision of laws that made six firms eligible for assistance this year. Kamco bought 77 billion won worth of their assets and leased them back to them. The companies said they benefitted from cuts to corporate sales tax on the assets sold to Kamco. 

Chairman Moon Chang-yong said many business firms with sound potential and superb technologies end up facing short-term liquidity problems at some point. And some of them even go out of business because they’re unable to solve the liquidity problems. Kamco is mandated to step in before that happens to help the companies continue to create jobs and perk up regional economies.

South Korea’s debt clearing house, Korea Asset Management Corp., is set to take over 20 vessels worth 390 billion won ($344 million) owned by six shipping firms.

According to the shipping industry recently, Kamco will sign a contract to acquire 20 container and bulk carriers with six shippers including SM Line Corp., Korea Shipping Co., Korea Line Corp., Namsung Shipping Co., Dooyang Limited and Pan Ocean Co. on May 15. Of the 20 vessels, 10 were previously owned by now-defunct Hanjin Shipping, formerly largest shipper in the country.

The state clearing house and six shippers will invest 390 billion won in Kamco Ship Investment Company, which will establish 20 special purpose companies (SPC) and lend money to them, and the SPCs will take over the vessels that will be leased back to the shippers. With the funds, the cash-strapped shippers should be able to improve their financial health by paying off debts and switching from short-term loans to long-term ones.

The help from the government will ease financial troubles of the nation’s new container shipper SM Line, who acquired major assets of Hanjin Shipping. The fledgling shipper would be able to keep Hanjin Shipping’s key workers and operation system with the newly raised fund.

KAMCO played an important role in facilitating the restructuring process and helping to develop financial markets. First, KAMCO purchased distressed assets from banks and other financial institutions, which allowed lending to resume at a time when liquidity was scarce. This objective was complemented by increased supervision to ensure that banks were operating on sound commercial principles. Second, Kamco’s resolution of NPLs contributed to the good progress made in Korea in recovering public funds injected by the government for financial sector restructuring. In addition, Kamco disposed of many of these distressed assets through a number of innovative methods, including by issuing asset-backed securities (ABS), which launched an important new market in Korea.

Kamco’s purchase made a substantial contribution to this rapid progress, especially during the period March 1998 to December 1999. Kamco’s total purchase of NPLs amounted to 44 trillion won in this period, or 50 percent of the outstanding NPLs in the banking sector at the beginning of the period. In recent years, KAMCO’s purchase has shifted toward the nonbank sector. Thanks to improved economic conditions and the development of a market for distressed assets, banks have been able to resolve and write off NPLs aggressively on their own since 2000. 

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