Regulator to expand bad bank's role in corporate restructuring

South Korea's financial regulator said Thursday that it will expand the role of a leading bad asset management firm in overhauling debt-laden companies next month, in an effort to speed up the country's corporate restructuring.

United Asset Management Company will take charge of leading debt workout programs through debt-for-equity swaps worth up to 28 trillion won ($24.6 billion), the Financial Services Commission said.

UAMCO, co-owned by six major banks including Shinhan Bank and Kookmin Bank, is a major player in the local non-performing loan market by clearing dud loans through write-downs and selling them to financial firms at a giveaway value.

Under the new plan, the FSC said UAMCO will run corporate restructuring and downsizing programs from November to help companies get back on track.

It will create private equity funds to buy sour loans extended to troubled companies that cannot pay off debt, but have potential to swing back into the black after tough restructuring.

Funded by two policy lenders and the six banks, UAMCO will raise 3.25 trillion won, up from the current 1.5 trillion won, to carry out its new assignment, the FSC added.

"The FSC is aiming to put government-led or creditor bank-led workout programs in private hands," said Sohn Byung-doo, director-general of the Financial Policy Bureau at the FSC. "It will lift the financial burdens of creditor banks and create new buyout opportunities for investors."

The FSC came up with the UAMCO-led corporate restructuring measure after scrapping its earlier plan to establish an independent company that specializes in corporate restructuring in a bid to shorten the time to launch a new organization.

The regulator has placed its policy priority on corporate restructuring as major banks and two policy lenders, the Korea Development Bank and the Korea Export-Import Bank, are suffering from massive losses stemming from the recent collapses of big businesses, including STX Group, Dongbu Corp. and Keangnam Enterprises.

The KDB, for example, has 116 non-financial affiliates, following stake purchases of indebted companies through debt-for-equity swaps.

FSC Chairman Yim Jong-yong has called for tighter monitoring of mounting corporate debt, which could lead to a series of bankruptcies, similar to what South Korea experienced during the 1997 Asian financial crisis.

According to the FSC, the total value of bad corporate loans extended by banks reached 30 trillion won this year, with 18 trillion won owed by shipbuilders. (Yonhap)