Deputy Prime Minister and Finance Minister Hyun Oh-seok said Wednesday that the government would require state-run enterprises ― especially the 12 companies whose debt has increased most ― to reduce their borrowing and executive bonuses.

He said that state-owned enterprises would have to reduce their debt ratios to less than 200 percent by 2017, with the current average at 220 percent. Hyun added that he would strengthen monitoring of the 12 public companies’ finances over the next four years.

The government’s 200 percent debt-ratio target benchmarked a level suitable at which private companies would be able to issue triple B-grade debt securities, the Ministry of Strategy and Finance noted.

More than 41 firms, including the 12 targeted, will need to reduce their debt through restructuring, in line with the new standards.

The 12 firms are Land & Housing Corp., Korea Electric Power Corp., Korea Deposit Insurance Corp., Korea National Oil Corp., Korea Gas Corp., Korea Coal Corp., Korea Resources Corp., Korea Water Resources Corp., Korea Expressway Corp., Korea Railroad, Korea Student Aid Foundation and Korea Rail Network Authority.

The outstanding debt of 12 state-owned enterprises reached about 412.3 trillion won ($400 billion) at the end of last year, up from 187 trillion won in 2007, according to a Finance Ministry report.

The increase in the 12 targeted state-run enterprises’ debt led to daily interest payments of some 21.4 billion won on average last year, according to the report.

LH and KEPCO’s debt, which increased to more than 50 trillion won over the last five years, accounted for almost 60 percent of the total debt by the 12 public companies, the report further noted.

The outstanding debt of some 680 public enterprises reached 566 trillion won at the end of last year, 120 trillion won more than the central and regional government’s debt, warned the Korea Institute of Public Finance.

The KIPF recommended a “full-scale” restructuring of state-run enterprises to reduce their debt obligations incurred from aggressive overseas expansion for energy resources and excessive domestic infrastructure spending.

Chief executives of state-run companies that do not make progress in debt reduction in their mid-term evaluation will be held responsible and removed from their posts, the deputy prime minister said.

The Finance Ministry said that it will strengthen its disclosure rules for its state-run companies, which will have to publicly report its finances periodically, including executive pay, bonuses and other welfare benefits.

The government will “freeze wages” of executives of public enterprises should they fail to meet its standards, Hyun told the press.

In a meeting with chief executives of the 12 state-run enterprises last month, the deputy prime minister warned that “the party is over” and that the government would put a stop to excessive bonuses, salaries and over-borrowing.

The government will also hold related government agencies responsible should they fail to properly oversee their companies and institutions that fall under their jurisdiction.

By Park Hyong-ki (hkp@heraldcorp.com)