Thresholds Are High and Time Consuming... Companies in Urgent Need of Funds Say "Conditions Must Be Eased"

Among the eligible aviation and shipping companies, only about 10 meet the requirements
With many procedures like application, inquiry, and review, LCCs urgently needing funds are sighing
Loan interest rates are less attractive, and some hesitate to apply due to possible government management intervention

[Asia Economy Reporters Kangwook Cho, Jehun Yoo] Concerns are mounting that the "golden time" may be missed as the Industrial Stabilization Fund, established with a massive 40 trillion won of taxpayers' money to support key industries forming the foundation of the national economy, has been at a standstill for a month. The announcement for support applications has been postponed until next month. After the announcement, there are still procedures such as submitting funding applications, consulting with the main creditor banks, eligibility screening, and review by the Fund Operation Deliberation Committee, so it is expected to take considerable time before the funds are actually injected into companies. The market points out that since there are not many companies meeting the stringent support conditions, the threshold should be lowered so that urgent funds can be provided immediately to those in need.

◆ High Thresholds and Interest Rates Above Banks Are a Burden = The market attributes the sluggish pace of the fund to difficulties in finding companies that meet the support criteria beyond Korean Air. Currently, the fund support is available to the aviation and shipping industries. Industries that have a significant impact on the national economy, employment, and security can also receive support upon consultation with relevant ministries, but the prerequisite is that the company is temporarily struggling due to the COVID-19 pandemic. Additionally, the company must meet conditions such as total borrowings exceeding 500 billion won and having more than 300 employees.

Even if companies meet the support criteria, the demanding requirements are cited as reasons for hesitation in applying. Companies receiving fund support must maintain employment at 90% or higher. Efforts to maintain employment must be submitted to the Korea Development Bank. Efforts to secure necessary liquidity through asset sales for business improvement are also required. Executive salaries must be frozen, and dividends as well as share buybacks are prohibited. Support to affiliates is also banned. At least 10% of the total support amount is subscribed as equity-linked securities, raising concerns that this could become a channel for future government intervention in management, which is one of the reasons for the slow fund support.

Another factor causing concern over the fund's lack of popularity is that the loan interest rates offered by the fund are not particularly attractive compared to commercial banks. Although the loan interest rates provided by the fund have not been finalized, they are likely not to be lower than those of commercial banks. The fund loan interest rates are known to vary by company and industry. For companies issuing corporate bonds, the issuance interest rate is used; for companies not issuing bonds, the average loan interest rate of the five major commercial banks based on credit rating is used as the base rate. The fund's bond procurement interest rate is then added to this base rate. Therefore, companies with lower credit ratings will inevitably receive high-interest loans from the fund. However, the current loan interest rates at commercial banks have recorded historic lows for three consecutive months until April. The corporate loan interest rate in April was 2.77%, down 0.17 percentage points from the previous month. The fund side states that due to concerns over preferential treatment and the need to repay bonds issued to operate the fund, they cannot offer loan interest rates lower than commercial banks. The government initially announced that the fund loan interest rate would be 'market interest rate + α.'

◆ LCCs and Shipping Companies Left in Blind Spots 'Sigh' = Companies actually suffering from cash shortages fall outside the eligibility criteria for the Industrial Stabilization Fund, leaving them in blind spots. In the case of Asiana Airlines, the M&A process is ongoing. HDC Hyundai Development Company declared a "complete review of acquisition conditions," and the M&A has made no significant progress. Among low-cost carriers (LCCs), four to five companies are pushing or considering rights offerings due to severe cash flow problems, but only two LCCs, Jeju Air and Air Busan, meet the fund's conditions. The shipping industry is similar. Only about ten shipping companies meet the fund's criteria. HMM, a potential second company to receive the fund, has already been receiving continuous financial support from the Korea Development Bank and other financial authorities, so its actual application is uncertain.

There is also speculation that Korean Air may delay its application. Recently, air cargo rates have surged, improving its business environment to some extent, and a 1 trillion won rights offering and asset sales are underway. However, a Korean Air official stated, "We plan to apply immediately once the announcement is made."

Some analysts suggest that the slow progress is due to differences in opinions among the fund's review committee members. The committee consists of seven members recommended by the Democratic Party, the United Future Party, the Ministry of Strategy and Finance, the Ministry of Employment and Labor, the Financial Services Commission, the Korea Chamber of Commerce and Industry, and the Korea Development Bank. Since the recommending institutions and their interests differ, it is pointed out that coordinating opinions is not easy.

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