KDB Rolls Up Sleeve to Restructure Companies in Financial Trouble
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KDB Rolls Up Sleeve to Restructure Companies in Financial Trouble
Board okays plan to raise cap on the issuance of industrial financial debentures to to 4 trillion won to brace for the worsening economic fallout of the novel coronavirus

25(Mon), May, 2020

KDB headquarters in Yeouido, Seoul. (Photo: KDB)

Korea Development Bank (KDB) is at the forefront of implementing “New Deal” policy programs to bring about immediate economic relief and reforms in industries in the wake of economic fallout, caused by the COVID-19 pandemic.

Financial industry sources said the government has come up with a combined financial relief package worth 253 trillion won for companies and small businesses buffed by the novel coronavirus.

The plan was hatched over the five sessions of the Emergency Economic Council Meeting. Of the total, KDB will be responsible for raising and executing more than 60 trillion won.

In particular, a 40 trillion won mainstay industry stabilization fund is part of the countermeasures taken by the government during the fifth Emergency Economic Council Meeting on April 22.

The 40 trillion won mainstay industry stabilization fund will be introduced under the jurisdiction of KDB to provide financial relief to seven mainstay industries, including aviation, shipping, shipbuilding and automobiles.

KDB is expected to contribute to around 2 trillion won, or 10 percent of a 20 trillion won special purpose vehicle (SPV) designed to purchase corporate debentures with low credit ratings, commercial papers (CPs) and short-term bonds.

Earlier, the government already announced economic relief during the 1st and 2nd Emergency Economic Council Meeting worth more than 17 trillion won, so the financial burden KDB has to shoulder for the provision of financial support for companies and business damaged by the pandemic, the purchase of corporate bonds, a bond stabilization fund, and a securities stabilization fund.

On the other hand, KDB has secured 7 trillion won in reserve for currency liquidity. KDB’s paid-in capital stood at 20 trillion won as of the end of last year.

The post-pandemic situation goes counter to KDB Chairman Lee Dong-gull’s vision of innovative financing. Chairman Lee declared, “Days of restructuring were gone, innovative financing will be the future,” as he took office.

Chairman Lee has reorganized its operation with a focus on supporting startups, but as the pandemic hit the nation and the world, his vision has also hit a snag.

Financial analysts said the problem is that if KDB secures money for additional future restructuring, the government will need to contribute of a few billion won and KDB will have to issue industrial financial debentures.

KDB ‘s capital now stands at 35 trillion won based on standards by the Bank for International Settlements. If KDB secure 1 trillion won by issuing subordinated industrial financial debentures, the bank will have room to extend loans worth between 7 trillion won and 8 trillion won.

KDB is rolling up its sleeves in efforts to rescue companies struggling with hardships caused by the pandemic.
Chairman Lee’s strategies to ramp up its capabilities in the non-restructuring sector are in danger of fizzling out.

To this end, Chairman Lee stressed the growth of the innovative growth financing segment as a future growth engine, a departure from the conventional role of restructuring, so he had put into resources for pursing digital innovation like the inauguration of the Venture Financing Division.

Under the stewardship of Chairman Lee, KDB has been handling the restructuring of Korea GM, Kumho Tire, STX Offshore & Shipbuilding, DSME and Hanjin Heavy Industries. KDB has poured 22.55 trillion won in financial support for the restructuring of 117 companies in bankruptcies or near collapse since 2010.

In a related development, KDB held a board of directors’ meeting on April 8 and approved a plan to raise the cap on the issuance of industrial financial debentures to up to 4 trillion won to brace for the worsening of economic fallout, caused by the novel coronavirus.

KDB said its board of directors’ decision was designed to raise its capital in preparation for the expanding of policy loans in the wake of the pandemic.

KDB has already decided to extend 1 trillion won to the financially strapped Doosan Heavy Industries & Construction in cooperation with Korea Eximbank.

KDB has tasks to be urgently handled like financial support worth 200 billion won for acquiring Jeju Air, in a liquidity crisis, and a financial support program for LCCs worth a maximum of 300 billion won.

Besides LCCs, full service carriers such as Korean Air and Asiana Airlines have been demanding an emergency relief fund in the wake of economic fallout, caused by the pandemic.

Mahindra & Mahindra of India, the biggest shareholder of Ssangyong Motor, canceled a new investment plan to pour 230 billion won into the Korean automaker, imposing a financial burden to KDB, the credit bank of Ssangyong Motor.

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