Ambitiously Launched Draft Fund... Zero Applicant Companies

Half a Month Since Application Started, Korean Air and Ssangyong Motor Still Quiet
90% Employment Retention for 6 Months, Prohibition on Shareholder Dividends and Treasury Stock Purchases
Government Requirements Strict... Concerns Over Stigma of Crisis Companies

[Asia Economy Reporter Kangwook Cho] It has been half a month since the 40 trillion won-scale Industrial Stability Fund (ISF) began accepting support applications, but it has been confirmed that no companies have applied for fund support yet. Neither Korean Air, which was initially expected to be the first recipient, nor Ssangyong Motor, which was desperate for fund support, have applied. Although the fund was launched with the ambitious goal of supporting key industries that form the foundation of the national economy, after more than two months of 'business suspension,' voices worrying about a 'box office flop' are now emerging.

According to the financial sector on the 24th, from the 7th, when the ISF Operation Deliberation Committee posted the support application notice, until the 22nd, there have been no applications from companies. The application process requires companies seeking support to submit an application form to their main creditor bank, which then reviews the documents and forwards them to the ISF Fund Operation Department within KDB Industrial Bank. However, it has been confirmed that no application forms have been sent to the Fund Operation Department yet. Not only Korean Air, which was considered the 'first ISF support target' due to liquidity crises caused by the COVID-19 pandemic, but also Ssangyong Motor, which showed signs of pushing forward with applications despite being ineligible, have shown no behind-the-scenes movements.

The market interprets that Korean Air is postponing its application as the situation has changed, such as its recent successful rights offering. Korean Air had already received 1.2 trillion won in funding from creditors including the Korea Development Bank and the Export-Import Bank of Korea in May, which was expected to be replaced by the ISF, making it a tentative first beneficiary. It is also known that Korean Air plans to request additional funding after the fund's launch.

Impact of Strict Government Requirements... Crisis Companies Avoid Due to 'Stigma Effect'

Meanwhile, Korean Air successfully attracted more than 4.8 trillion won in the first rights offering in the aviation industry since COVID-19 on the 14th and 15th. As a result, Korean Air secured 1.127 trillion won in funds. It is also proceeding with the sale of its in-flight meal business and idle assets. The market expects Korean Air to comfortably secure the 4 trillion won in cash it needs by the first half of next year.

There are also forecasts of an 'earnings surprise' in the second quarter. Despite passenger numbers dropping more than 97% compared to the previous year, it is expected to return to profitability due to cost-cutting efforts and increased demand for cargo transport. Kim Yoo-hyuk, a researcher at Hanwha Investment & Securities, said, "Considering the cash inflow from cargo, it is judged that the liquidity crisis has been overcome."

Ssangyong Motor has found it difficult even to submit application documents for the fund. Nevertheless, it expressed its intention to immediately apply for 200 billion won in funding once the submission schedule is announced. This was interpreted as an appeal to show how desperate the situation is, even if it fails to meet the eligibility criteria. However, there has been no news. Recently, Ssangyong Motor selected Samsung Securities and Rothschild as lead managers for its sale and is gauging interest from potential buyers. Following the sale rumors, its stock price soared, and Ssangyong Motor's market capitalization more than doubled from 292.1 billion won on the 15th of last month to 604.6 billion won yesterday. Some expect that non-core asset sales, loan maturity extensions from the Korea Development Bank, and increased sales may even spark hopes for business normalization.

The market points out that companies that were desperate for funding due to liquidity crises are turning away because the application criteria are high and the government's post-support requirements are stringent. The loan conditions include maintaining over 90% employment for six months, efforts to secure liquidity such as asset sales, prohibition of shareholder dividends, prohibition of treasury stock purchases, prohibition of support to affiliates, among eight conditions in total. In particular, at least 10% of the total support amount must be acquired as equity-linked securities, which raises concerns that the government could intervene in corporate management later. The fact that the loan interest rates provided by the fund are not particularly favorable compared to commercial banks is also cited as a reason for concerns about the fund's lack of popularity.

The 'stigma effect' feared when applying for the fund is also a problem. Due to the negative image of being a 'crisis company,' companies may face difficulties in issuing corporate bonds in the future. A financial sector official said, "The ISF is ultimately a loan, and if the cash flow is improving at this point, there is no reason to apply for the fund," adding, "Especially because being labeled a 'crisis company' could cause difficulties in future financing, there will not be many applicants."

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