KDB to inject capital into Eximbank through KAI shares

The state-run Korea Development Bank said Tuesday that it will hand over its shares of Korea Aerospace Industries to the Export-Import Bank of Korea as part of an emergency financial relief.

“We have decided to give our KAI shares to Eximbank,” KDB chief executive Lee Dong-geol told reporters ahead of a meeting with the Financial Services Commission on Tuesday.

KDB will hand over its 7.86 percent stake in KAI worth about 500 billion won ($426 million) to boost the capital base of Eximbank Korea, whose BIS adequacy ratio has been falling on growing exposure to the bad debts of shipping and shipbuilding companies.

KDB is the biggest shareholder of KAI with a 26.75 percent stake, according to KAI’s annual audit filing.

Eximbank’s BIS ratio stands at around 10 percent, well below the standard threshold of 15 percent, despite receiving a capital injection of some 1 trillion won through shares of the state-run Korea Land & Housing Corp. by the government last year.

The shares of KAI that KDB gives to Eximbank Korea will be credited on the policy bank’s balance sheet, boosting its capital. The government has been debating with the central bank on how to provide liquidity to both KDB and Eximbank, which will have to finance massive restructuring of companies under heavy debt. The Bank of Korea said that it would be appropriate to recapitalize banks through a fund using bank bonds as collateral as it did in the aftermath of the global financial crisis of 2008, instead of directly providing liquidity through money-printing measures, to minimize losses.

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