Gov’t to inject 50 trillion won to avoid liquidity crisis

Oct 24, 2022, 09:30 am

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Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho and top financial regulators pose for a commemorative photo prior to an emergency meeting held at the Bank Hall in Jung-gu, Seoul, on Oct. 23, 2022. The photo shows (from left) Financial Supervisory Service chief Lee Bok-hyun, Bank of Korea Gov. Rhee Chang-yong, Finance Minister Choo Kyung-ho, Financial Services Commission chair Kim Joo-hyun, and Senior presidential secretary for economic affairs Choi Sang-mok./ Source: AsiaToday DB

AsiaToday reporter Son Cha-min

As South Korea’s corporate bond market has been facing an increased risk of a credit and liquidity crunch following the default and bankruptcy of the Legoland Korea developer, the government will expand its liquidity provision programs by over 50 trillion won ($34.7 billion). It is necessary to issue new corporate bonds to prevent the maturity of corporate bonds, but if such refinancing becomes difficult, a risk of corporate bankruptcies due to shortage of funds is increased.

In fact, as a cumulative 68 trillion won in corporate bonds is expected to mature in the first half of next year, there are signs that small and medium-sized construction companies will default and go bankrupt within the year.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho held an emergency meeting with top financial regulators on Sunday to examine the recent volatility of corporate bond and short-term money markets and announced measures to stabilize the market.

“Amid the growing concerns in the corporate bond and short-term money markets, and to prevent a liquidity crunch, we plan to activate more liquidity programs on top of existing market stabilization measures, expanding the fund to 50 trillion won and more,” Choo said. “Of this, the government plans to activate the 1.6 trillion won of the bond market stabilization fund worth 20 trillion won to purchase corporate bonds and commercial papers.”

Corporate bond yields were maintained at a high level because corporate bonds with low credit ratings had to pay a higher interest rate than government bonds to be issued in a situation where the base rate was raised. In addition, the real estate project-financing (PF) securities crisis emerged due to the slump in the real estate market, and the short-term money market has frozen following a Legoland Korea developer defaulting in project-financing asset-backed commercial papers (PF-ABCP) guaranteed by Gangwon Province. Besides, Dunchon Jugong Apartment Association failed to refinance 700 billion won worth of project-financing asset-backed short-term bonds (PF-ABSTB), the government has mobilized all available resources to ease the short-term money market.

#liquidity #Legoland