South Korea will form a task force to assess the finances of construction firms and smaller shipbuilders and will force unviable companies to restructure, the financial watchdog said yesterday.
The Financial Supervisory Service (FSS) said banks would form the task force with accounting experts and credit appraisers.
“Restructuring will begin early next year,” FSS governor Kim Jong-chang told reporters, adding the government would “boldly” weed out non-viable firms.
“Basically, the government will focus on salvaging firms by injecting fresh funds or putting them under debt rescheduling programs,” Kim said.
The FSS said in a statement it planned to calm market jitters “by preemptively restructuring companies that may become insolvent.”
It said the task force would scrutinize 26 small and medium-sized shipbuilders with orders from overseas, as well as construction companies with more than 5 billion won (US$3.7 million) in loans. South Korea, home to seven of the world’s top 10 shipyards, has secured record orders in recent years.
But the global financial crisis and a sharp decline in new orders have eroded their profitability, with smaller shipyards facing a severe credit crunch.
The slowing economy has also left a huge number of unsold apartments. Many smaller and mid-sized construction firms are struggling to service debts taken out during the 2005-2006 housing boom.
Banks have already agreed to roll over the debt of 27 cash-strapped construction firms by one year in return for restructuring.
Government data shows total loans extended by savings banks and other lenders to finance real estate projects stood at 79 trillion won at the end of June.
South Korean banks’ loan-delinquency ratio rose to a three-year high last month as more companies fell behind on payments in a slowing economy.
The delinquency ratio rose to 1.18 percent from 0.92 percent a year earlier, compared with 1.24 percent at the end of 2005, the FSS said yesterday in an e-mailed statement.