Korea’s State firm CEOs pressured to cut debts; combined debt owed by public firms totaled 565.8 trillion won ($538 billion), higher than the government’s debt of 446 trillion won

2013-12-10 17:40

State firm CEOs pressured to cut debts

By Na Jeong-ju
Strategy and Finance Minister Hyun Oh-seok vowed Tuesday to conduct “rigorous” debt restructuring programs at public firms, saying their CEOs will be held responsible if they fail to meet government standards.
“We will implement stricter performance evaluation standards for all CEOs at public firms,” Hyun said during a forum on public sector reform in Seoul. “If they fail to reduce debts, they will be kicked out immediately. We won’t consider their given terms.”Hyun said the government is partly responsible for the massive debts held by public firms.
“Their debts have risen continuously due to the combination of multiple factors including the government’s lax monitoring and mismanagement. We must address this before it’s too late,” the minister said.
This is the latest in a series of warnings by Hyun to heavily-indebted state-owned firms. Last month, Hyun said, “The party is over” for public firms, strongly criticizing them for snowballing debts and excessive bonuses and incentives offered to their staff.
Today, the government will announce a policy package aimed at improving their financial health and making them more competitive.
According to the Korea Institute of Public Finance, the combined debt owed by public firms totaled 565.8 trillion won ($538 billion) as of the end of 2012, which was higher than the government’s debt of 446 trillion won.
In particular, the debts held by 12 major public firms, including land and housing developer LH Corp. and power supplier KEPCO, surged from 187 trillion won to 412 trillion won under the previous Lee Myung-bak administration.
That’s because they issued bonds and borrowed heavily to finance large-scale construction and engineering projects, including the four-river refurbishment scheme.
“The government must scrap the four-river project and scale down other projects that require large-scale investments,” the institute said in a report.
Nine of the 12 firms failed to make interest payments with their operating profits last year. They include LH, KEPCO, the Korea Rail Network Authority, Korea National Oil Corp. and Korea Water Resources Corp (K-Water).
Their operating profits were only 6.9 trillion won last year, but they owed over 7 trillion won in interest.
The debt ratio at K-Water, which oversaw the four-river project, stood at 19.6 percent in 2008 but jumped to 122.6 percent in 2012, according to the ministry.
The ministry said it has expanded the disclosure of information on debt owed by the 12 firms through its information portal Alio.
“That’s part of our efforts to set up a better public monitoring system for the debts at state companies,” the ministry said in a press release.
Minister Hyun said executives and employees at public firms have enjoyed excessive benefits and job security, even though their companies are in crisis.
“They would have gone through large-scale restructuring several times if they were private firms,” Hyun said.