(LEAD) S. Korean lenders to restructure 20 builders, shipbuilders

(ATTN: ADDS more details in paras 3,4,8-9,11-13)
SEOUL, March 27 (Yonhap) -- South Korean banks and non-bank financial
institutions will weed out five ailing companies and reschedule debts at 15
builders and shipbuilders to keep potential defaults from denting the slumping
economy, a bank association said Friday.
Many small and mid-sized construction firms and shipbuilders have been feeling
the pinch of the global economic slump, with some facing a severe liquidity
squeeze, as the export-driven Korean economy is markedly losing steam.
"Local creditor financial firms decided to end support to five companies and put
13 builders and two shipbuilders under a bank-initiated debt rescheduling
program," the Korea Federation of Banks (KFB) said in a statement.
The five companies including construction firm Dowon Technology Group will be
urged to file for court protection or survive on their own, the KFB said.
Creditor financial institutions will help 15 companies, including mid-sized
builder Shindo Engineering & Construction Co., normalize their business by
rescheduling their debts, it said.
The restructuring drive was launched in Korea as a possible bankruptcy chain
reaction would undermine the soundness of the banking sector, dealing a harsh
blow to the whole economy.
The corporate revamp will force the financial firms, mostly banks, to put aside
about 196 billion won (US$146.7 million) in additional loan-loss reserves, which
will likely have only a limited impact on their financial health, the nation's
financial watchdog said.
Creditor financial firms have been assessing the financial health of 74 shipyards
and construction companies. The local financial sector extended 9.2 trillion won
in loans to them as of the end of February, out of which 1.6 trillion won was
lent to 20 ailing firms in question, according to the Financial Supervisory
Service.
A slowing economy has resulted in a huge number of unsold apartments, and many
cash-strapped small and mid-sized construction firms are now struggling to
service debts taken out during the 2005-2006 housing boom.
South Korean shipyards, which secured record orders in recent years due to strong
demand, are also suffering as a sharp decline in new orders and foreign exchange
losses are eroding their profitability.
The selection of troubled firms came in mid-January, in the first phase of the
revamp drive, local banks decided to end support to two ailing companies and
reschedule debts at 11 builders and three shipbuilders.
"Creditor banks will assess the health and credit risks of local shippers and
larger companies starting in April," the watchdog said.
Local banks are set to receive a capital injection through a bank
recapitalization fund as the slowing economy and a corporate restructuring revamp
are increasing the amount of distressed loans, hurting their financial health.
As of the end of last year, the average capital adequacy ratio of 18 commercial
and state banks was at 12.19 percent, up 1.33 percentage points from three months
earlier.
sooyeon@yna.co.kr
(END)