Choo Kyung-ho "Local Government Guaranteed ABCP, Pledge to Faithfully Fulfill Obligations"

Government and Bank of Korea Announce Emergency Macroeconomic and Financial Meeting Results
Commitment to Guarantee Obligations Amid Legoland-Induced Funding Squeeze

Deputy Prime Minister for Economy Choo Kyung-ho attended the 'Emergency Macroeconomic and Financial Meeting' held at the Bankers' Hall in Jung-gu, Seoul on the 23rd, and is briefing the meeting results after the meeting./Photo by Yoon Dong-ju doso7@/Photo by Yoon Dong-ju doso7@

The government, alarmed by the funding crunch triggered by Legoland in Gangwon Province, once again assured that all local governments will faithfully fulfill their guarantee obligations for asset-backed commercial papers (ABCP) guaranteed by local governments going forward.

On the 23rd, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho made these remarks after holding an emergency macroeconomic and financial meeting at the Bankers Hall in Seoul with Lee Chang-yong, Governor of the Bank of Korea; Kim Ju-hyun, Chairman of the Financial Services Commission; Lee Bok-hyun, Governor of the Financial Supervisory Service; and Choi Sang-mok, Senior Secretary for Economic Affairs at the Presidential Office.

He said, "We will actively respond to the instability in real estate project financing (PF)," and emphasized, "Regarding local government-guaranteed ABCP, all local governments will faithfully fulfill their payment guarantee obligations, which we reaffirm once again."

Deputy Prime Minister Choo’s remarks are interpreted as an effort to ease the funding market crunch caused by Gangwon Province, the main entity behind the Legoland project, refusing to honor its guarantee on the ABCP.

Earlier, Gangwon Jungdo Development Corporation (GJC), a subsidiary of Gangwon Province, established a special purpose company (SPC) called Iwon Jeilcha in 2020 to raise construction funds for Legoland and issued ABCP worth 205 billion KRW, but it defaulted this month.

The 205 billion KRW Legoland ABCP is known to be held by 10 domestic securities firms and one asset management company. The default of ABCP, which was considered relatively safe due to local government guarantees, caused a sharp rise in corporate bond and commercial paper (CP) interest rates, rapidly cooling the overall funding market.

When the bond market freezes, prices fall and interest rates rise, making it increasingly burdensome for companies to issue corporate bonds. Additionally, the credit spread?the difference between corporate bond and government bond yields?has doubled compared to early this year, further increasing borrowing costs for general companies.

The government also emphasized that it will strongly respond to acts that cause market instability.

Deputy Prime Minister Choo said, "We will closely communicate with market participants such as financial institutions to promptly identify and address market trends and difficulties," and added, "We will actively respond to market-disrupting acts that cause market instability and the spread of malicious rumors and false information."

Lee Bok-hyun, Governor of the Financial Supervisory Service, also said in this regard, "The Financial Supervisory Service is carefully monitoring various information related to the soundness and liquidity of financial institutions," and added, "Based on this situational awareness and information, we believe some issues strongly reflect market-disrupting characteristics involving the spread of false information."

Deputy Prime Minister Choo added, "Going forward, the government and the Bank of Korea will closely cooperate to vigilantly monitor changes in market conditions and boldly and swiftly implement necessary measures to stabilize the market."

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