The Government Keeps Pumping Money... But Companies Cry Out in a 'Money Drought'

[Asia Economy reporters Kangwook Cho, Suyeon Woo, Sehee Jang] Company A, a first-tier supplier delivering parts to Hyundai Kia Motors' overseas factories, operates overseas subsidiaries in India, the United States, and the Czech Republic, with annual sales reaching 24 billion KRW. However, as Hyundai Kia Motors' overseas plants extended their shutdown periods, the company has faced difficulties even in securing operating funds. They requested emergency financial support from domestic financial institutions, but were told that it would take four weeks from credit evaluation to disbursement for their overseas subsidiaries.

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Due to the impact of the novel coronavirus disease (COVID-19), industries including aviation, automotive, shipbuilding, and semiconductors are all experiencing a severe cash crunch. The unprecedented real economy shock has tightened credit markets, freezing corporate bond issuance and leaving many companies on the brink of collapse due to blocked funding channels. Although the government has announced hundreds of trillions of won in support measures through five emergency economic meetings, sharp voices are emerging that the 'rich get richer, poor get poorer' phenomenon is intensifying for companies pushed to their limits based on their credit ratings.

According to financial and business circles on the 23rd, excluding asset-backed securities (ABS), corporate bond issuance this month through the previous day totaled 2.6924 trillion KRW, down 48.1% compared to the same period last year. This is also a 32.3% decrease from the same period last month. Corporate bond issuance this year surged from about 6.8 trillion KRW in January to 12.3 trillion KRW in February, then dropped to 5.1 trillion KRW in March, and has shrunk by nearly half this month. In early February, when COVID-19 began spreading, companies proactively raised funds, significantly expanding bond issuance. However, as pandemic concerns grew, the corporate bond market froze. Although the government has greatly increased corporate financial support, companies that cannot even issue bonds say the measures do not feel tangible.

Nagiwon, chairman of the Renault Samsung entrusted companies council, said, "Currently, second-tier vendors in the Gyeongnam region are all struggling, but I heard that only about 7 billion KRW in government support has been provided." He added, "On the other hand, banks are lending freely to companies with good credit ratings, but say there is no money for C-rated companies," raising his voice.

There are also calls to review whether government support is flowing only to large corporations. A representative of company B, a small and medium enterprise, said, "Credit ratings have a decisive impact, and even large corporations that previously had no funding needs due to COVID-19 are now accumulating as much debt as possible." He criticized, "They are building reserves at low interest rates and conducting mergers and acquisitions (M&A) overseas, so profits are flowing out abroad."

The government’s stance differs. A Bank of Korea official said, "Currently, corporate loan supply is at a smooth level, and there are no issues with high-grade bonds in the corporate bond market." He added, "Even for non-investment grade bonds, the situation is not immediately problematic." The official continued, "If a normally operating company faces temporary difficulties, the government or central bank can intervene, but it is appropriate for the government to step in for companies with significant credit risk."

An official from the Ministry of Economy and Finance explained, "The 20 trillion KRW corporate bond purchase special purpose vehicle (SPV) to support non-investment grade bonds will be structured with government capital and loans from the Bank of Korea." He added, "The government will bear the SPV’s losses, but specific details such as the initial capital structure require further discussion."

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