S. Korea beefing up overhaul drive for large firms

SEOUL, April 30 (Yonhap) -- Liquidity-squeezed large business groups are expected to sign agreements with creditor banks calling for enhancing their financial health next month as part of a bank-led corporate restructuring drive, the financial watchdog said Thursday.

Since April, local banks have been assessing the financial health of 45 Korean
conglomerates whose debt accounts for more than 0.1 percent of total credit
provided by the banking sector.
If some of the business groups are found to be financially unhealthy, local banks
are expected to sign agreements with them calling for beefing up financial
conditions until the end of May by selling off assets or affiliates.
According to industry sources, a total of 14 business groups proved to fall short
of a standard measuring their financial soundness and about 10 conglomerates are
expected to sign such deals with creditor banks.
"The government plans to craft a variety of measures to help accelerate the
corporate overhaul move and enhance its effectiveness," the Financial Supervisory
Service (FSS) said after an emergency economic meeting presided over by President
Lee Myung-bak.
The FSS said the watchdog plans to push local banks to rigorously restructure
large companies. Creditor banks will review credit risks of large firms which
owed more than 50 billion won (US$37.9 million) to financial firms by the end of
June.
The move comes as the country's banks are in the process of revamping ailing
construction firms, shipbuilders and shippers in a bid to prevent their possible
defaults from denting the slowing economy and supplying much-needed capital to
viable companies.
The restructuring move is being pushed as a possible bankruptcy chain reaction
would undermine the soundness of the banking sector, dealing a harsh blow to the
whole economy.
The South Korean economy grew 0.1 percent in the first quarter from three months
earlier as a sharp decline in exports has moderated, averting a much-feared
recession or two straight quarters of contraction. Asia's fourth-largest economy
shrank 5.1 percent for the fourth quarter of last year.
South Korea is beefing up measures to help local banks cushion the impact of the
corporate overhaul drive. The government is seeking to set up a 40 trillion won
fund to buy bad debts from local financial firms and purchase assets from ailing
companies.
It also plans to establish a special fund to help even healthy financial firms
recapitalize as a backup measure to cushion rising defaults and the impact of the
sharp economic downturn.