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[Market close-up] Market eyes KDB's bail-out plan on coronavirus-hit companies

Excessive focus on conglomerates gives rise to concerns

Korea Development Bank Chairman Lee Dong-gull speaks at a parliamentary audit on Oct. 14, 2019. (Yonhap)
Korea Development Bank Chairman Lee Dong-gull speaks at a parliamentary audit on Oct. 14, 2019. (Yonhap)

A number of companies in South Korea, both big and small, are standing on the edge of a cliff due to a liquidity crisis stemming from the ongoing virus pandemic.

With dark clouds hovering, the Korea Development Bank, a state-owned development policy bank that finances industrial projects, is bending over backward to prop up Korea Inc., injecting vast amounts of emergency public funds into cash-strapped businesses.

The industry is keenly watching the next moves of KDB Chairman Lee Dong-gull, the man in charge of assisting cash-strapped companies. However, questions linger as to whether Lee and his institution will reach out to them again in the face of public criticism -- with some saying massive amounts of public funds should not be wasted on unsuccessful companies that already had their chance.

The list of companies lined up for KDB’s support includes SsangYong Motor, Asiana Airlines and Doosan Heavy Industries & Construction.

SsangYong’s parent firm, Indian automotive conglomerate Mahindra & Mahindra, recently decided not to make new investments in the loss-making carmaker. It had previously vowed to get the Pyeongtaek-based car manufacturer back on track by 2022, pledging to invest a total of 522.8 billion won ($427.6 million). To that end, the carmaker had planned to raise 230 billion won by issuing new stocks while making up the rest with financial support from Korea’s public financial institutions, including KDB.

Since M&M scrapped its initial plan, KDB which served as a white knight for conglomerates in past financial crises, has emerged as the last resort for SsangYong. For the state-owned bank, letting the automotive firm go insolvent is a tough decision that could create ripples in the local economy, costing jobs and destroying automotive parts supply chains.

KDB -- as a mere creditor of SsangYong, not a shareholder -- has yet to make its stance clear.

“M&M has made its latest decision without consulting with KDB,” a bank official was quoted as saying by local news outlet News 1. “The bank does not think this is the right time to make any announcement on the issue.”

SsangYong, which posted an operating loss of 281.9 billion won last year, owes KDB 90 billion won. The debt is set to mature in July.

The state-owned bank is also preparing to pour 300 billion won into financially strapped low-cost carriers here and, together with Korean export credit agency the Export-Import Bank of Korea, or Korea Eximbank, to provide 1 trillion won to Doosan Heavy Industries & Construction. In addition, KDB has set aside some 2.2 trillion won to support businesses hit by the virus.

The Hyundai Development Company, which is working to acquire Asiana Airlines, has reportedly asked KDB and Korea Eximbank for a rollover of 500 billion won loans.

It has not been decided whether the banks will bail out the beleaguered airliner, as there are growing concerns over excessive favors for conglomerates.

“As the coronavirus crisis continues, more companies will be pushed to the brink of collapse,” said an official from the local financial sector, adding that “KDB will then inevitably shoulder a larger burden.”

Since taking office in September 2018, the KDB chief has led a series of restructuring schemes for ailing companies, including STX Offshore & Shipbuilding and Kumho Tire. He said in the beginning of the year that sacrifice was inevitable in the process of achieving innovation, hinting that he would push hard to restructure troubled businesses at any cost.

By Kim Young-won (