KDB to Issue Government-guaranteed Bonds
The South Korean government announced on April 22 that it would issue 40 trillion won of government-guaranteed bonds to assist the seven key industries of aviation, shipping, shipbuilding, automobile, general machinery, electric power and communications. Beneficiaries must come up with employment stabilization measures based on labor-management agreements and some of the provided funds will be allowed to be converted into stocks in a profit-sharing scheme.
Korea Development Bank (KDB) will issue the bonds and private funds and special purpose vehicles will make additional investments. The assistance will be available for five years and a deliberation committee will be set up in KDB for flexible, transparent, professional and responsible fund management.
Approximately 20 percent of the financial assistance is planned to take the form of convertible preferred stocks and stock-linked securities such as bonds with warrants and convertible bonds. The three-month average immediately before assistance will be used as the stock price in the case of conversion. For example, the government fund will buy bonds with warrants for corporate recapitalization and the bonds will be subsequently converted into stocks for share acquisition.
The Financial Services Commission stressed that the share acquisition does not mean nationalization and it is to share future profits with the society rather than to intervene in management. It also explained that the provided funds cannot be used for high salary payment, dividend expansion and share buyback.
Applications can be filed for one year following the implementation of the program. The government is planning to use various target-specific methods such as lending, payment guarantee and investment. In addition, investment and credit exposure in relation to related funds and special purpose vehicles will be allowed so that private funds and their know-how can be utilized. The Financial Services Commission mentioned that beneficiaries can be added down the road if necessary.