Government to Establish 40 Trillion-Won Period Industry Stabilization Fund... Expands 35 Trillion-Won Financial Support for Livelihoods (Comprehensive)

President Moon Jae-in is presiding over the 5th Emergency Economic Meeting at the Blue House on the morning of the 22nd. (Yonhap News)

[Asia Economy Reporter Kim Hyo-jin] The government has decided to raise more than 40 trillion won to support key industries facing crises due to the impact of the novel coronavirus infection (COVID-19). Additionally, the government plans to increase the existing support scale of '100 trillion won + alpha (α)' for companies affected by COVID-19 by 35 trillion won.

The Financial Services Commission announced on the 22nd that the 'Employment and Corporate Stability Measures to Overcome the Job Crisis' with these contents were finalized at the 5th Emergency Economic Meeting chaired by President Moon Jae-in.

The government will establish a Key Industry Stabilization Fund of more than 40 trillion won to support seven major key industries facing difficulties in raising funds: aviation, shipping, automobile, shipbuilding, machinery, power, and telecommunications. The 40 trillion won will be raised by issuing government-guaranteed fund bonds, and additional necessary funds will be attracted through private funds or investments in special purpose vehicles (SPVs), according to the government's plan. To ensure professionalism and accountability in fund management, a Fund Management Deliberation Committee will be established.

The government set the condition of maintaining a certain employment volume ratio for a certain period as a requirement for support. To this end, the Ministry of Employment and Labor will investigate the changes and reasons for the employment volume of supported companies semiannually and notify the Korea Development Bank (KDB). If the employment stability plan is violated, additional interest rates may be imposed, or support funds may be reduced or recovered.

To prevent moral hazard by companies, the government decided to prohibit the payment of high salaries (including severance pay and performance bonuses), dividends, and acquisition of treasury stocks until the full repayment of support funds. Furthermore, the government will provide about 15-20% of the total support amount through equity-linked securities (convertible bonds, bonds with warrants, etc.) and preferred stocks (redeemable convertible preferred stocks, etc.) to share future profits from corporate normalization. Before establishing the fund, urgent funds for the aviation industry, etc., will be first supported by the Korea Development Bank and the Export-Import Bank of Korea, and the fund operation will be temporary for five years.

Previously, financial support for small business owners and companies decided at the 1st and 2nd Emergency Economic Meetings will be expanded from 100 trillion won by an additional 35 trillion won to more than 135 trillion won in total. Support for small business owners will be increased by 10 trillion won, and the issuance scale of P-CBOs (bond collateralized securities) to help companies will be expanded by 5 trillion won. For medium and large companies to use these funds, employment volume maintenance conditions will be imposed, similar to the Key Industry Stabilization Fund.

Twenty trillion won will also be invested to purchase corporate bonds of companies with low credit ratings. Policy financial institutions will participate based on fiscal support, and the Bank of Korea will provide liquidity support.

The government urged the National Assembly to closely cooperate in amending the Korea Development Bank Act necessary for establishing the Key Industry Stabilization Fund. It also plans to promptly complete procedures such as government guarantees for fund bonds. Specific support targets and criteria requiring consultation among related ministries will be decided at the Ministerial Meeting on Strengthening Industrial Competitiveness. Support funds will be recovered sequentially considering the economic situation after COVID-19 ends.

Financial Services Commission Chairman Eun Sung-soo said in an online briefing on these measures, "At this moment when the shockwave of COVID-19 is spreading, the most important thing is to act immediately," adding, "We will make every effort with related ministries to ensure that the Korea Development Bank Act is amended in the May National Assembly so that the Key Industry Stabilization Fund can be promptly established."

The Financial Services Commission plans to meet with policy financial institutions, commercial banks, and financial associations on the 23rd to explain the purpose and contents of these measures and request cooperation.

Eun Sung-soo, Chairman of the Financial Services Commission

This content was produced with the assistance of AI translation services.