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(LEAD) S. Korea steps up corporate restructuring drive

All News 15:04 March 09, 2016

(ATTN: REWRITES headline, lead; UPDATES with more info throughout)

SEOUL, March 9 (Yonhap) -- South Korea's financial regulator said Wednesday it will announce a set of ill-performing companies in July based on the results of a credit risk analysis on businesses that owe over 50 billion won (US$41 million) to banks.

The move is part of the government's extended efforts to keep financially troubled companies from further hurting the Korean economy, which is already struggling with falling exports and low growth. Korea's major exporters, such as shipbuilders, shipping lines and construction companies, were hit hard by the 2009 financial crisis and their businesses are still at rock-bottom levels.

"With the global economy not showing signs of recovery, we will make a stronger push in corporate restructuring this year by adopting stricter standards to sort out more poor-performing companies compared with last year," Kim Yong-beom, secretary general of the Financial Services Commission (FSC), said in a press briefing.

Last year, the FSC found that 54 companies out of the 1,900 subjected to credit analyses failed to meet the cash flow, interest coverage ratio and financial health requirements. The 54 were ordered to go under a debt-rescheduling program or a court receivership, the FSC said in a statement.

The interest coverage ratio is used to measure a company's ability to meet its debt obligations. If the ratio is smaller than 1, the company fails to meet the obligations with its operating income.

"This year, we will also select companies that suffer from capital erosion or downgrades in their credit ratings and whose businesses are on the decline," Kim said. "Not the government but the subjected companies and their creditor banks should take the initiative in drawing up self-rescue plans for tangible results."

To help ailing shipping companies, the government and financial institutions will set up a $1.2 billion fund in the coming years. Shipbuilders receive money from the fund to build ships and then shipping lines charter those ships under long-term contracts.

"Only when shipping companies, such as Hanjin Shipping Co. and Hyundai Merchant Marine Co., meet the requirement of lowering their debt-to-equity ratio to below 400 percent from the current 600-800 percent, they can charter the vessels," said Ryu Jae-hun, director of the FSS corporate restructuring division.

As for the restructuring of Daewoo Shipbuilding & Marine Engineering Co. and other shipbuilders, Ryu said self-help measures, such as the sale of non-core assets, capital injections and job cuts, are going on as planned. Daewoo Shipbuilding inked a record 5.5 trillion won in net loss last year.

The FSC plans to release the results on small and medium-sized companies in November.


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