Watchdog mulls 10 tln won bond fund

SEOUL, Nov. 13 (Yonhap) -- South Korea's financial watchdog said Thursday it is considering setting up a fund of about 10 trillion won (US$7.17 billion) in a bid to stabilize the bond market and ease a corporate funding squeeze.

The watchdog plans to push for creating a fund into which existing institutional
bond investors such as banks and the state pension fund would pool money. The
fund plans to buy a wide range of bonds, including bank and corporate debts, but
only those with a certain credit rating level, according to the Financial
Services Commission (FSC).
"The move aims at easing 'temporary friction' in the market caused by rising
uncertainty in the global financial markets," Jun Kwang-woo, chairman of the FSC,
told a press conference.
According to the plan, the country's state-run Korea Development Bank (KDB) would
pool 2 trillion won into the fund by selling its debts after the government
increases its capital.
The government said in early November that it plans to raise KDB's capital base
by a combined 1 trillion won until next year in a bid to beef up KDB's policy
lending capability.
The move comes as South Korean banks and companies are suffering from tightened
credit conditions amid the global financial meltdown and the slowing economy.
The FSC said the fund is expected to buy debt instruments like primary
collateralized bond obligations whose underlying assets are corporate bonds sold
by sound companies and exporters.
Meanwhile, Jun said the government will spare no effort to privatize KDB as
planned, but it plans to factor in market conditions for the timing of the stake
sale.
South Korea plans to start reducing its 100 percent stake in KDB next year and
fully privatize it by 2012. KDB, established in 1954, engages mainly in providing
local companies with loans for capital spending.