Restructuring Targets
On June 2, the Ministry of Trade, Industry & Energy and the Korea Institute for Industrial Economics & Trade released the draft of guidelines pertaining to the Corporate Vitality Improvement Special Act that is scheduled to become effective in August this year. According to the guidelines, the South Korean government is to divide industries and business segments into those requiring restructuring due to supply glut or demand decline and the rest based on operating profit-to-sales ratios for the three most recent years.
Specifically, any industry or segment is to be deemed to be in a state of oversupply when it satisfies all of the following three conditions: a state where the average of the operating profit-to-sales ratios for the three most recent years is at least 15% less than the average of the operating profit-to-sales ratios for the preceding 10 years; a state where two or more out of five auxiliary index criteria are satisfied; and a state where supply and demand situations are unlikely to be improved for the time being with a recovery in demand unpredictable or a response to a change in demand impossible. The auxiliary index criteria consist of capacity utilization rate, inventory-to-sales ratio, service production-to-employment ratio, rates of price and cost changes and industry-specific indices.
Any company wishing to resort to restructuring or business reorganization can submit its plan to the government after drawing it up in view of the standards. Then, the government decides whether or not to approve in its business reorganization deliberation committee that consists of 20 members including officials from the Ministry of Trade, Industry & Energy, the Ministry of Strategy & Finance, the Fair Trade Commission and the Financial Supervisory Service along with private-sector experts and experts recommended by the National Assembly. The committee is to be headed by Vice Minister of Trade, Industry & Energy Lee Kwan-seop and one of the private-sector experts to be named soon.
According to the Korea Institute for Industrial Economics & Trade, in the meantime, 55 out of South Korea’s 194 manufacturing items fall into the category of oversupplied items when the first one of the three states above is applied.