Arab Banks Apply Pressure to Government over SK Global Bonds

Among creditor banks of SK Global, Arab banks are reportedly pressuring the Korean government into helping them get their bonds back.

Arab banks including the Arab Banking Corporation (ABC) refused the readjusted plan of bonds, which was recently agreed upon by local and overseas creditors, according to financial sources Wednesday. They are pressing the nation`s government agencies such as the Ministry of Finance and Economy, the Ministry of Construction and Transportation, the Ministry of Commerce, Industry, and Energy, the Bank of Korea, and the Financial Supervisory Service, to help them collect all the debts that SK Global owed.

Arab creditors gave a $99 million syndicate loan to SK Global through the Islamic Trade Facility (ITF). The loan accounts for 17 percent of the embattled trading company`s total overseas debt.

Arab bank officials have already visited Korea several times to meet government officials or send documents to the government agencies.

“The money we provided for SK Global was not a loan but rather commercial bonds related to oil. Therefore, the total amount should be returned,” they claim.

“If our demands are not met, confidence in Korea will drop in the Middle East and Korean construction companies will have difficulties securing guarantees for work,” they reportedly told government officials.

The majority of large shareholders of Arab banks are from the royal families and the powerful in the government.

In response, the local financial circles refuted that Arab banks are imposing unjust pressure by taking advantage of the nation`s high dependence on oil from the Middle East.

“The money was certainly given in the form of loans but they are making ridiculous arguments,” said an official of local creditor banks. “Applying pressure to the government over the loss of bonds was only possible in the 1970s. We will not heed any of their threats in the negotiation.”

In the meantime, Standard Chartered Bank, which is a leading overseas creditor of SK Global, notified domestic creditors of the estimated results of agreements on receiving 43 percent of the bonds in cash and writing off the rest. The agreement rate was known to have reached only 80 percent due to the opposition of Arab banks.

Domestic creditors are expected to decide not to seek court receivership in a meeting Thursday. They will also make a decision on the readjusted plan of bonds.

Joong-Hyun Park sanjuck@donga.com