[PF Soft Landing] Accelerating 'Restructuring and Resolution' of Troubled PF... Must Obtain 75% Consent for Maturity Extension

PF Bond Auction Standards for Savings Banks Expanded to All Financial Firms
1 Trillion Won Syndicated Loan Prioritized for Q3 Deployment
Expanded Kamco Participation... Temporary 50% Acquisition Tax Reduction Incentive Also Planned

Kwon Dae-young, Secretary General of the Financial Services Commission, is announcing the future policy direction for an orderly landing of real estate PF at the Government Seoul Office in Jongno-gu, Seoul on the 13th. Photo by Jo Yong-jun jun21@

The financial authorities are accelerating policies to systematically restructure real estate project financing (PF) sites with insufficient business viability and to resolve them through auctions and public sales. The requirement for creditor consent for projects that have extended maturity more than twice will be strengthened from 'two-thirds or more' to 'three-quarters or more,' and interest deferral will be changed to a principle of repaying overdue interest. Additionally, the standards for auctions and public sales of PF bonds, currently applied to the savings bank sector, will be expanded to other sectors, and a 1 trillion won syndicated loan jointly provided by financial companies to purchase PF auction and public sale funds will be prioritized.

On the 13th, the Financial Services Commission and the Financial Supervisory Service disclosed a plan to clean up distressed projects as part of the 'Future Policy Directions for the Orderly Soft Landing of Real Estate PF.' Distressed projects are those classified as cautionary or at risk of distress according to improved real estate PF business viability evaluation criteria. For cautionary projects, financial companies must promote restructuring and voluntary sales. For projects at risk of distress, write-offs or sales through auctions and public sales must be pursued.

At the policy announcement, Kwon Daeyoung, Secretary General of the Financial Services Commission, stated, "In a situation where high interest rates and high inflation are expected to persist for a considerable period, there are cases where maturity extensions are generously granted to projects with extremely low viability, delaying restructuring and resolution. Delinquency rates are also rising, especially in the secondary financial sector." He analyzed, "The accumulation and deferral of PF distress cause tightening of funding even for normal PF projects, leading to delays in construction starts and potentially resulting in a contraction of real estate supply."

Accordingly, the authorities plan to complete revisions to creditor agreements across all financial sectors and sector-specific agreements related to distressed project handling by June. The revised creditor agreements aim to limit segmented maturity extensions and interest deferrals by mandating external expert PF viability evaluations when maturity is extended more than twice, and raising the consent threshold for maturity extension from 66.7% to 75%.

Furthermore, interest deferrals through agreements will be mandated to proceed on the premise of repaying overdue interest, and asset soundness will be classified considering overdue interest. However, partial repayment of overdue interest may allow deferral if a plan to resolve remaining arrears is considered. Secretary General Kwon explained, "We plan to monitor PF project situations continuously by mandating creditor groups to report maturity extensions and interest deferrals to the secretariat."

They also plan to expand the auction and public sale standards, currently implemented by the savings bank sector since April, to other sectors. The savings bank sector requires auctions and public sales within three months for PF bonds overdue more than six months. Additionally, projects with insufficient auction and public sale efforts will be evaluated at official land prices to encourage prompt resolution.

To accelerate prompt resolution, a 1 trillion won syndicated loan will be established mainly by banks and insurance sectors and executed from the third quarter. The purpose is to supply new money to the auction and public sale market to facilitate smooth capital circulation. Five banks (Kookmin, Shinhan, Hana, Woori, Nonghyup), two life insurers (Samsung, Hanwha), and three non-life insurers (Meritz, Samsung, DB) have agreed to jointly invest in the 1 trillion won syndicated loan. The authorities plan to gradually expand the syndicated loan up to 5 trillion won depending on support status and market conditions.

Korea Asset Management Corporation (KAMCO) will be allowed to participate in the auction and public sale market by supplying funds through a 1.1 trillion won fund. In particular, the tax exemption law will be revised by June to provide a temporary 50% reduction in acquisition tax for assets acquired by the KAMCO fund. Additionally, the authorities are promoting a plan to grant 'preemptive purchase rights' to selling financial companies regarding KAMCO fund’s capital supply. This means giving PF bond sellers the first opportunity to repurchase PF bonds if KAMCO fund disposes of them later.

Secretary General Kwon said, "We will steadily implement the land acquisition of Korea Land and Housing Corporation (LH) PF projects announced last March, the allowance of asset acquisition through KAMCO fund auctions and public sales, and the temporary acquisition tax reduction." He added, "We will continue measures to enhance fund execution, such as introducing preemptive purchase rights for the KAMCO fund to facilitate smooth resolution of distressed bonds."

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