Existing Debt Delinquency and Tax Arrears Exclude Support for Key Industry Partners

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is speaking at the 7th Emergency Economic Central Countermeasures Headquarters meeting held on the 19th at the Government Seoul Office in Jongno-gu, Seoul. / Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Kim Hyo-jin] A 5 trillion won operating fund loan program for key industry partner companies struggling due to the novel coronavirus infection (COVID-19) will be launched next month.

Companies with a history of debt delinquency or those facing severe financial difficulties even before the COVID-19 crisis will be excluded from the program.

According to financial authorities on the 20th, the government approved the "Key Industry Partner Operating Fund Support Program Introduction Plan" at the 7th Emergency Economic Central Countermeasures Headquarters meeting held yesterday at the Government Seoul Office in Jongno-gu, Seoul, chaired by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki.

The support targets are small and medium-sized enterprises (SMEs) and mid-sized companies established before May 1 of this year, which are expected to face a shortage of working capital due to decreased sales caused by COVID-19, and are considered key industry partner companies that significantly impact the national economy, employment stability, and national security under the Korea Development Bank Act.

The Enforcement Decree of the Korea Development Bank Act defines the aviation and shipping industries as the sectors eligible for support from the 40 trillion won Key Industry Stabilization Fund established by the government. However, additional eligible sectors may be designated through agreement among related ministries such as the Financial Services Commission and the Ministry of Economy and Finance.

Companies with structural vulnerabilities existing before the COVID-19 crisis are excluded from support. This includes companies with delinquent existing debts, tax arrears, those undergoing rehabilitation or restructuring procedures, those with net losses for three consecutive years, or those in a state of complete capital erosion.

The government plans to supply a total of 5 trillion won in operating fund loans to eligible companies starting next month. A special purpose vehicle (SPV) established with a 1 trillion won contribution from the Key Industry Stabilization Fund will purchase partner company loan receivables from commercial banks and issue securitized bonds (P-CLO).

Banks will retain 10% of the loan receivables to share the risk. This is intended to prevent moral hazard during the loan handling and management process. Companies wishing to apply for loans should apply to the creditor bank they wish to transact with. Eligible companies will be granted an additional loan limit (with a 2-year maturity) beyond the standard loan limit.

Banks will execute loans that meet the requirements for transfer to the SPV after screening companies that qualify for support. Interest rates will vary depending on credit ratings and loan maturities, and incentives such as reductions may be provided based on the company's efforts to maintain employment. Loans will be handled for six months from the program's implementation date.

The government plans to conduct consultations with the banking sector through financial authorities by mid-next month to facilitate participation in the program. The government also stated that it may consider extending the operation period comprehensively considering companies' financing conditions, loan scale, and operational performance.

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