To Provide Liquidity to Companies with Low Credit Ratings
The South Korean government has decided to set up a special purpose vehicle (SPV) with a size of 20 trillion won in order to buy corporate bonds and commercial papers with low as well as high credit ratings.
“CBs and CPs with low credit ratings have failed to benefit from the bond market stabilization fund, P-CBO and the Bank of Korea’s special loans for financial market stabilization,” the Financial Services Commission remarked on April 22, adding, “The SPV will be based on financial support, participation of government-run financial institutions and liquidity support from the Bank of Korea.”
Details of the SPV are scheduled to be fixed after talks with the central bank. It is likely that a government-run financial institution such as Korea Development Bank will make an investment in the SPV and the Bank of Korea will provide lending for the SPV. In addition, bond purchase by the vehicle is likely to be carried out on condition of beneficiaries’ efforts for maintaining employment.
The government increased the P-CBO for COVID-19 response by five trillion won, too. This year’s P-CBO issuance went up from 1.7 trillion won to 6.7 trillion won and the issuance for three years to come rose from 6.7 trillion won to 11.7 trillion won.