“The worsening financial health of public firms has become a major national concern. We must address their heavy debts”; Korean govt urged 12 heavily-indebted public firms to sell all their “unnecessary” assets. For example, the housing developer pays an interest of some 12 billion won ($11.4 million) every day for its debts totaling 142 trillion won. Its debt ratio stands at 466 percent

2013-12-31 16:01

Public firms to sell non-core assets

By Na Jeong-ju
The government urged 12 heavily-indebted public firms Tuesday to sell all their “unnecessary” assets and lower their debt levels.
The targeted firms include Korea Land & Housing Corp., Korea Gas Corp. and Korea Electric Power Corp. The combined debts held by the 12 firms soared from 187 trillion won to 412 trillion won ($393 billion) under the previous Lee Myung-bak administration.For example, the housing developer pays an interest of some 12 billion won ($11.4 million) every day for its debts totaling 142 trillion won. Its debt ratio stands at 466 percent.
The government also ordered 20 other “poorly-managed” public enterprises to cut benefits and bonuses for their employees. Among them are Korea Racing Authority and Incheon International Airport Corp.
All the firms must submit their own restructuring plans in early 2014. The government will then evaluate their efforts in September and sanction those that underperform.
These measures are part of a reform program for public firms, adopted by the Ministry of Strategy and Finance.
“The worsening financial health of public firms has become a major national concern. We must address their heavy debts,” a ministry official said. “They will be compelled to take rigorous restructuring measures, including disposing of assets and abolishing the generous benefit package for workers. Their managers will be held responsible if the firms fail to meet our demands.”
The ministry told the 12 indebted firms to submit the list of assets that “have nothing to do with their businesses,” the official said. These assets include properties in resort areas and equity investments in private companies.
They will also be ordered to readjust their business portfolios by abandoning non-profitable projects, he said.
The ministry also banned all public firms from providing “excessive” benefits to employees. Their benefits will be cut to the same levels as public servants.
“Some firms even cover living expenses of workers’ family members, including medical bills and tuition fees. These practices will be strictly regulated,” the official said.
Revamping the financial state of public firms is one of the top priorities of President Park Geun-hye. Cheong Wa Dae said Park will hold a meeting with CEOs of public firms on Jan. 8 in connection with the restructuring efforts.
The government’s reform plan is expected to trigger huge protests from unionists, as seen in the recent labor-management struggle at the state rail operator KORAIL.
Many public firms issued bonds and borrowed heavily to finance large-scale construction and engineering projects under the Lee administration, including the four-river refurbishment scheme. Some of them failed to make interest payments with their operating profits this year.
Finance Minister Hyun Oh-seok recently said, “The party is over” for public firms, strongly criticizing them for snowballing debts and excessive benefits offered to their staff.
According to the Korea Institute of Public Finance, the combined debt owed by pubic 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.