(2nd LD) S. Korea launches 40 tln-won fund for backbone industries

(ATTN: UPDATES with comments by head of financial regulator and background in paras 5-8)

SEOUL, May 28 (Yonhap) -- South Korea on Thursday launched a fund worth 40 trillion won (US$32.2 billion) to provide timely financial assistance to the country's backbone industries amid the economic fallout of the new coronavirus.

The government has said airlines, shippers and others hit hard by the COVID-19 pandemic are eligible for the fund's financial support if they have more than 500 billion won in debt and more than 300 employees per company.

Among others, South Korea's two full-service carriers -- Korean Air Lines Co. and Asiana Airlines Inc. -- and seven low-cost carriers have suffered from a sharp decline in air travel demand sparked by the coronavirus pandemic.

Local airlines have suspended most of their flights on international routes since March as an increasing number of countries have strengthened entry restrictions amid virus fears.

Financial Services Commission Chairman Eun Sung-soo expressed a willingness to provide additional financial assistance to the budget carriers, though he did not specify whether the proposed assistance would come from the fund or a state lender.

He also said a main creditor bank of SsangYong Motor Co. can determine whether to provide financial assistance to the South Korean unit of Indian carmaker Mahindra & Mahindra Ltd.

KPMG Samjong Accounting Corp., the auditor of SsangYong Motor, has recently refused to deliver an opinion on the carmaker's ability to run normally as a company after the carmaker posted sharply widened net losses in the first quarter.

From January to March, SsangYong's net losses deepened to 193.54 billion won (US$157 million) from 26.12 billion won in the year-ago period as the coronavirus outbreak affected production and sales.

Also Thursday, the Financial Services Commission unveiled a plan to create a separate fund worth 300 billion won as part of broader efforts to help facilitate corporate restructuring.

The fund is meant to extend loans to companies and buy their convertible bonds or bonds with warrants, the commission said in a statement.

The commission said the creation of the fund could meet companies' short-term capital needs, and investors can expect a stable profit with low risks, which could lead to additional investments.

"Market-led restructuring is a must ... as creditor banks have a limitation in their assistance to restructuring companies for the normalization of management," Sohn Byung-doo, vice chairman of the commission, said in a meeting with officials of policy lenders and private equity funds at a building in southern Seoul.

The move comes as some South Korean companies are pushing to sell their assets to secure liquidity amid uncertainty over the COVID-19 pandemic.

The fund is part of a broader corporate restructuring innovation fund meant to facilitate corporate restructuring.

The corporate restructuring innovation fund, set up in 2018, has so far invested about 700 billion won in 16 companies, including KG Dongbu Steel Co. and Sungdong Shipbuilding & Marine Engineering Co.

The commission has expanded the size of the corporate restructuring innovation fund to 2.6 trillion from the previous 1.6 trillion won.

entropy@yna.co.kr
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