KDB to Purchase Corporate Bonds to Stabilize Financial Market
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KDB to Purchase Corporate Bonds to Stabilize Financial Market
Injects emergency funds in Doosan Heavy Industries & Construction to help company get back on feet

22(Wed), Apr, 2020

An view of KDB headquarters in Yeouido, Seoul. (Photo: KDB)

The Korea Development Bank (KDB) will buy 1.9 trillion won worth of corporate bonds in order to keep the Korean financial market stable in April. Corporate bonds of grade A or higher worth up to 200 billion won per company will be purchased by the bank.

The bonds will be issued in order to repay maturing bonds. The KDB will take over corporate bonds of grade A or higher and those issued by companies whose credit ratings deteriorated in the aftermath of the COVID-19 crisis but were still in the investment grades of BBB- or above.

In addition, a quick corporate bond acquisition program by the KDB will be launched to purchase 2.2 trillion won worth of bonds with non-investment grades of BBB or lower.

The Industrial Bank of Korea will receive 20 percent of the bonds worth 2.2 trillion won from the KDB and repay maturing bonds. The remaining 80 percent will be sold to creditor banks and the KCGF.

Moreover, the KDB is actively expanding the supply of funds to help startups overcome the crisis caused by the spread of the novel coronavirus and promote investment in them. The Startup Support Program with 300 billion won in support funds will begin to lend helping hands to startups and venture companies hit hard by the COVID-19 crisis, the KDB said.

In detail, the KDB is planning to support them with a general financial support package consisting of investments, conversion bonds for shared growth, bridge loans, and mega-venture special loans to support the growth of future unicorn companies.

The KDB plans to monitor damage to companies and support them with follow-up financing, if necessary, to support the liquidity of invested companies. Stock-related bonds (CBs and BWs) of previously-invested companies will be reissued and the execution of the redemption rights to convertible redemption preferred shares (RCPSs) will be suspended.

Indeed, according to a survey of companies by invested in by the KDB in March 2020, 45.3 percent of respondents said they were hurt by the novel coronavirus, including decreased sales and the delayed supply of raw materials.

“We plan to significantly expand the number of venture companies as investment and financing targets in 2020,” a KDB official said. “The volume of our support in the first quarter of 20 years have already exceeded that of 2019.”

In the beginning of 2020, the KDB implemented proactive organizational reorganization, such as the establishment and expansion of the Venture Finance Headquarters, which became the driving force to empower the KDB to differentiate itself from others when facing a crisis.

In addition, the KDB provided a 5.7-trillion-won growth support fund to supply a large amount of venture capital to small and medium-sized enterprises (SMEs) and venture companies, and is rapidly supplying funds (investment of 1.5 trillion won as of the end of February 2020). It will additionally raise 2.5 trillion won in funds in the rest of the year.

A view of Doosan Heavy Industries & Construction headquarters in Changwon, Gyeongsangnam-do. (Photo: Doosan Heavy)

The KDB announced in late March that creditors, including the KDB and the Export-Import Bank of Korea, decided to pump one trillion won in emergency funds into Doosan Heavy Industries & Construction, which faces its liquidity deteriorating due to a financial market crunch sparked off by the novel coronavirus crisis on condition that Doosan Heavy Industries & Construction, its largest shareholder (Doosan Corporation) and its affiliates would fulfill their responsibilities and sincerely implement a self-rescue plan.

Moreover, the creditors will consider whether to continue to provide additional funds while checking the Doosan Group’s responsible self-help efforts if necessary. The KDB reported related information and data at a ministerial meeting on the reinforcement of Korea’s industrial competitiveness on February 27, 2020.

It also held an emergency meeting of creditors of Doosan Heavy Industries & Construction to urge the creditors to extend their loans to the company autonomously in order to jointly support it so that it will be able to get on its feet.

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