"Preventing Real Estate PF Defaults"... 3,700 Financial Firms Launch 'PF Lenders Agreement'

'PF Daejudan Agreement Ceremony' Held on the 27th
Support for Debt Restructuring Including Maturity Extension, Repayment Deferral, Principal Reduction, and Equity Conversion
New Funds Also Injected

[Image source=Yonhap News]

To prevent a chain of defaults at real estate project financing (PF) sites facing liquidity difficulties, a 'PF Lenders' Agreement' involving all financial sectors will be launched.

The Lenders' Agreement is a financial sector construction industry recovery program first activated during the 2008 global financial crisis when temporarily tightened funding put sound construction companies at risk of insolvency despite profitability. It has reemerged after 15 years to address liquidity shortages in construction companies. This time, mutual financial institutions are also participating, expanding the scale compared to the past.

On the afternoon of the 27th, the 'PF Lenders' Agreement Ceremony' was held at the Bankers Association in Myeongdong, Seoul, attended by the Bankers Association, Life Insurance Association, Non-life Insurance Association, Financial Investment Association, Credit Finance Association, Korea Federation of Savings Banks, Saemaeul Geumgo, NongHyup, Suhyup, ShinHyup, Korea Forestry Cooperative Federation, and all financial associations and financial authorities.

At the ceremony, Kim Ju-hyun, Chairman of the Financial Services Commission, said, "We are promoting proactive risk management for over 3,600 real estate PF projects on a project-by-project basis," adding, "Once the 'PF Lenders' Agreement' is activated, creditor financial institutions can quickly agree on maturity extensions, debt restructuring, and new funding support."

The scope of the PF Lenders' Agreement applies to projects that are either distressed or at risk of distress and involve financial companies from different sectors. Eligible participants include banks, financial investment firms, specialized credit companies, savings banks, as well as mutual financial institutions such as Saemaeul Geumgo, NongHyup, Suhyup, Korea Forestry Cooperative, and ShinHyup. A total of 3,780 financial companies are participating, with 3,474 having signed the agreement as of the previous day.

If creditor financial institutions apply to enter a joint management process, the autonomous council decides whether to initiate it. Developers can also apply for the joint management process. Eligible projects are those where three or more creditor financial institutions hold total claims of 10 billion KRW or more. If financial institutions holding at least three-quarters of the claims agree, the joint management process begins.

Once the joint management process starts, the autonomous council conducts a feasibility assessment and establishes a normalization plan. To support project normalization, it can approve debt restructuring measures such as maturity extensions, repayment deferrals, principal reductions, equity conversions, or new funding support. Approval requirements have been relaxed for smooth support; maturity extension support requires only a two-thirds majority. Developers and contractors have also agreed to lower sale prices to share losses.

The autonomous council signs special agreements with developers and contractors to implement the normalization plan and regularly monitors performance. If the special agreement is rejected, developers and contractors can request a re-vote after an external evaluation.

The financial authorities have decided to provide incentives for implementing the Lenders' Agreement. If debt restructuring loans for project normalization are repaid normally for a certain period, asset classification will be upgraded. Additionally, sector-specific limit regulations will be temporarily eased when supporting debt restructuring and new funding.

Lee Bok-hyun, Governor of the Financial Supervisory Service, stated, "We will establish a 'Real Estate PF Comprehensive Support Center' within the FSS to monitor and manage the progress of normalization." The Bankers Association will also set up a 'PF Lenders' Comprehensive Support Center.'

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