122 Korean SMBs to go under restructuring
November 9, 2013 Leave a comment
122 SMBs to go under restructuring
Lee Jin-myung
2013.11.08 15:56:54
South Korea’s 112 small and mid-sized businesses (SMBs) will face restructuring. The Financial Supervisory Service (FSS) along with creditor banks conducted credit risk assessment of 1,502 SMBs with weaker financials Friday and thereby rated 54 companies as grade C, a rating reserved for companies that need workout, and 58 companies as grade D, a rating for those that need to go under court receivership or shut down business. The total number of SMBs subject to restructuring was up 15.5 percent from a year ago to the highest level unseen since 2010. The 112 companies in distress include those that have remained in red or posted times interest earned (TIE) below one, or held precautionary assets.
SMBs with grade C will enter workout programs by starting asset and debt assessment and developing plans to restore management. SMBs with grade D will salvage management on their own or file for court receivership or face business closure.
“To prevent insolvencies from spilling over into sound companies, we will provide strong support to rescue viable companies and revamp inviable companies in prompt and drastic manners,” said Cho Young-je, vice governor of the FSS.
To this end, aside from the 112 targeted companies, if companies, which are now financially sound, show signs of going insolvent and ask for loans, they will be required to strike special agreements with main creditor banks to improve financial structures in an effort to encourage them to conduct restructuring in advance. Companies that do not abide by the agreements will be denied access to additional loans and face cap on the issuance of bonds and commercial papers (CPs).
Based on the credit risk evaluation, banks should set aside a total of 573.5 billion won ($539.0 million) in provisions.
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