Sangui "Requesting Prompt Launch of SPV to Resolve Funding Difficulties"

53% of Non-Investment Grade Bonds Maturing This Year, Concentrated in June and September

Korea Chamber of Commerce and Industry

[Asia Economy Reporter Dongwoo Lee] The Korea Chamber of Commerce and Industry (KCCI) announced on the 14th that it is requesting the prompt launch of a special purpose vehicle (SPV), an entity that purchases corporate bonds, commercial papers (CP), and short-term bonds including low credit ratings, to provide swift support to companies facing urgent financial conditions due to upcoming corporate bond maturities.

KCCI assessed that measures currently in place to address the COVID-19 crisis, such as the Bond Market Stabilization Fund and support for issuing P-CBOs (corporate bond-backed securities), target high-grade corporate bonds and commercial papers, leaving the non-investment grade bond market still in a difficult situation.

For companies with credit ratings below A grade, unexpected variables such as financial market instability caused by COVID-19 have made it difficult not only to raise funds through corporate bonds and CP but also through bank loans, placing them in a relatively tight liquidity situation.

KCCI stated, "The government has emphasized the importance of the shipbuilding, aviation, and shipping industries, which have a significant impact on the national economy, employment stability, and national security, by deciding to establish a 40 trillion won scale period industry stabilization fund. Since many companies in these sectors are in the low credit rating corporate bond market, expanding support to include low credit ratings is a matter where speed is of utmost importance."

It added, "To alleviate the liquidity crunch of low credit rating companies, the government proposed in May the establishment of an SPV to purchase low credit rating corporate bonds, CP, and short-term bonds. However, necessary measures for securing SPV funding have not yet been implemented, making the timing of the SPV’s launch and operation uncertain."

Non-investment grade corporate bonds maturing this year are concentrated 53% (2.5 trillion won) in this month and September, with corporate payment demands at the end of the first half and financial institutions’ quarter-end soundness evaluations also scheduled for this month. Furthermore, according to the Bank of Korea’s Financial Institution Lending Survey, corporate funding demand has significantly increased in the second quarter due to decreased sales and increased economic uncertainty, prompting companies to secure liquidity.

KCCI emphasized the need for continuous corporate financial support, citing the lack of self-sustainability in the private sector this year. According to KCCI’s analysis of economic growth contributions, in 2019, the government contributed 1.6 percentage points and the private sector 0.4 percentage points to the 2.0% economic growth rate, but this year, the government’s contribution is estimated at 1.2 percentage points while the private sector’s is -1.4 percentage points, indicating a significant decline in private sector contribution.

Additionally, the Corporate Financial Condition BSI, an indicator reflecting corporate financial conditions, recorded its lowest level in 11 years and 5 months, showing a level of difficulty comparable to the global financial crisis.

Min Kyung-hee, a research fellow at KCCI’s SGI, stressed, "To achieve practical financial support effects for companies facing concentrated funding demands this month, we hope the government and the National Assembly will work together actively to take necessary measures so that the SPV launch is not delayed."

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