New 300 Billion Won Regional Revitalization Mother Fund Established... Opening Large-Scale Projects for Local Governments

The government will newly establish a 'Regional Revitalization Investment Fund' worth 300 billion KRW to support large-scale projects desired by local regions. The core idea is to activate large-scale sustainable projects that local governments have not been able to undertake independently so far, and to maximize the use of private sector profitability verification mechanisms.

On the 31st, the Ministry of Economy and Finance disclosed key follow-up measures regarding the operation plan for the Regional Revitalization Investment Fund. Choi Jin-kwang, head of the Regional Revitalization Investment Task Force (TF) at the Ministry, said, "This system originated from the awareness that jobs and people gather only when local governments undertake projects proven to be profitable and economically viable by the private sector," adding, "It aims to overcome the limitations of one-off, small-scale regional investments that heavily depend on fiscal resources and to promote sustainable large-scale projects led by regions and the private sector."

Specifically, the government and policy financial institutions will establish a parent fund. Next year, the Ministry of Economy and Finance, the Korea Development Bank, and the Local Extinction Response Fund will each invest 100 billion KRW, totaling 300 billion KRW. The minimum leverage based on the total project cost is expected to be 10 times the investment amount, or 3 trillion KRW. Additionally, sub-funds will be funded by the parent fund and private investors, and local governments may also invest if they wish. The parent fund’s investment ratio in sub-funds can be up to 30% of the total fund size for metropolitan city projects and up to 50% for provincial (do) projects. The parent fund will also provide subordinated support up to 20% of the private investors’ contribution within the sub-fund, bearing losses first if they occur.

Special Purpose Corporations (SPCs) composed of private developers and local governments will promote and manage the projects, and sub-funds funded by the parent fund and others will invest in the projects. In terms of investment responsibility, local governments and private developers will invest through common shares, while sub-funds will invest through preferred shares. They will bear final responsibility for project outcomes and enjoy correspondingly high returns.

The parent fund will be launched in January next year, and project selection will begin within the first quarter of the year. At least 10% of the total project cost must be raised as capital by the project SPC (including local governments, private developers, sub-funds, etc.). However, large-scale infrastructure projects require an investment of at least 30%. To encourage participation of project financing (PF) lenders and strengthen profitability based on multi-layered profitability verification, additional PF loan special guarantees will be provided.

Project targets can be freely selected by metropolitan local governments within the scope that does not undermine the fund’s purpose or public interest. Various projects can be promoted within the Seoul metropolitan area and other regions as long as they do not harm the fund’s objectives or public interest. This will enable the creation of large-scale smart farms, energy convergence clusters, and integrated tourism resorts. However, projects where sales from commercial facilities or multi-family housing account for 50% or more of the total project cost, or projects already completed but with a high risk of insolvency, are excluded.

The government explained that multi-layered verification mechanisms have been established to prevent the selection of unprofitable projects. The investment review committee within the entrusted management company of the parent fund will make independent decisions, and neither the government nor the Korea Development Bank will intervene in these decisions. To secure the public interest of SPCs, local governments and sub-funds will be granted management control rights such as the right to recommend directors.

Team leader Choi said, "We have set comparative advantages for each stakeholder so that local governments can undertake feasible projects and sustainably attract jobs and people to the region," adding, "Because intermediate mechanisms have been established for the private sector to verify profitability in multiple layers, projects proven to be economically viable and profitable will be activated."

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