Loan Draft Fund Deadline Extended Until End of Next Year... National Guarantee Limit Cut to One Quarter

National Guarantee Limit Reduced from 40 Trillion to 10 Trillion

[Asia Economy Reporter Park Sun-mi] The support period for the Industrial Stabilization Fund (ISF), launched last year to assist industries severely affected by COVID-19, has been extended by one year until the end of next year. However, with the high eligibility threshold remaining unchanged, there are concerns that the number of companies requesting financial support is unlikely to increase significantly.

According to financial authorities on the 7th, the Financial Services Commission’s ISF Operation Deliberation Committee extended the ISF support period, which was originally set to end by the end of this year, by one year until the end of next year. Initially, the ISF was scheduled to conclude at the end of April, but considering the prolonged COVID-19 situation, it was extended by eight months until December 31 of this year.

A financial authority official stated, "Only the deadline has been extended for now, and the support conditions and levels will be decided through further discussions." He added, "Until the end of this year, the fund will operate under the existing conditions, and for the additional one-year extension until the end of next year, the committee will discuss the conditions later."

According to the existing plan, the ISF support targets nine industries that have a significant impact on the national economy, employment stability, and national security, including aviation, shipping, automobile, shipbuilding, machinery, steel, refining, aircraft manufacturing, and petrochemicals. Eligible companies are those with total borrowings of 500 billion KRW or more that have a substantial impact on the national economy, or companies with 300 or more employees that significantly affect employment stability. When receiving financial support, companies must maintain the number of employees as much as possible (at least 90%), and during the support period, they must comply with conditions such as prohibiting dividend payments to shareholders and freezing salaries of high-income executives.

However, there is growing demand for easing the application requirements to preserve the original purpose and effectiveness of the ISF, which is to protect jobs in key industries and among their workers. The ISF, established with a scale of 40 trillion KRW, has faced criticism for its poor performance, having supplied only 587.5 billion KRW as of May this year due to the high application threshold.

If the application threshold remains unchanged, debates over effectiveness are likely to continue

The fund provided a total of 332.1 billion KRW to Asiana Airlines and Jeju Air, and since November last year, it has started acquiring loan claims from partner support organizations, acquiring 255.4 billion KRW in loan claims by the end of May. Due to this, last month, the National Assembly Budget Office advised that many companies are unable to apply for funds because they do not meet the criteria of ‘total borrowings of 500 billion KRW or more and 300 or more employees,’ and recommended assessing the demand for fund applications from companies and reviewing whether the current criteria and support levels are appropriate. KDB Industrial Bank also stated that if the total borrowing criterion is relaxed to 300 billion KRW, a total of 14 companies across sectors such as aviation (2), shipping (1), machinery (2), automobile (4), steel (3), and chemicals (2) could be added to the support target.

Accordingly, the Financial Services Commission’s previous stance that ‘there is no need to relax the criteria separately because support is possible through the fund operation deliberation even if the requirements are insufficient’ may be reconsidered, taking into account that the fund is intended to support companies that have difficulty raising funds. Whether the criteria will be relaxed will depend on future developments.

However, the fact that the ISF’s support performance has been minimal and that the government guarantee limit for ISF bonds has been drastically reduced from the original 40 trillion KRW to 10 trillion KRW may be a disappointing factor for the industry.

The Ministry of Economy and Finance recently submitted the 2021?2025 National Guarantee Debt Management Plan to the National Assembly, announcing that from next year, the government guarantee limit for ISF bonds will be reduced from 40 trillion KRW to 10 trillion KRW. Until now, the ISF has operated by issuing bonds guaranteed by the government to raise funds for corporate support, but the outstanding balance of ISF bonds issued last year was only 500 billion KRW. The Ministry expects this year’s issuance to be limited to 1 trillion KRW as well.

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