Posted July. 11, 2013 06:43,
Forty companies, including three listed ones, will undergo restructuring. Massive numbers of companies hit hard by economic downturn, such as construction, golf and resorts, and solar energy companies, which are suffering from worsening profitability, have been included in the restructuring list.
The Financial Supervisory Service said Wednesday it chose 40 companies to be placed under restructuring, up four companies from last year. The results were based on detailed evaluation of credit risks of 584 companies among 1,802 that took out loans of over 50 billion won (44 U.S. million dollars) from financial institutions.
The financial industry watchdog evaluates annually the credit risk of companies that made huge loans from the financial institutions and divides them into grades from A to D. C-grade companies have to sign workout agreements with creditor banks and carry out turnaround, while D-grade companies are placed under court receivership.
A total of 27 companies received C grade this year, including 14 construction companies, two shipbuilding and marine companies, and one steel, petrochemical and cement company. There were 13 D-grade companies including six builders, one shipbuilding and marine firm, and two one steel, petrochemical and cement companies. C and D grade companies were all developers, not constructers.
Last year, more companies were placed in liquidation, with 15 C-grade companies and 21 D-grade companies falling into the category. As the share C-grade companies increased this year, the financial industrial watchdog decided to go with restructuring through a workout program.
The Financial Supervisory Service estimates that financial institutions will have to set aside 680.3 billion won (599 million dollars) of loss allowances due to the latest restructuring decision. A combined 4.5 trillion won (3.96 billion dollars) were lent to 40 companies placed under restructuring this year. The financial regulator classifies loans made to companies to be placed under restructuring as "non-performing loans," meaning financial institutions should set aside a certain amount of loss allowances additionally. This year`s amount of restructuring-related loss allowances to be set aside stands at 1.1 trillion won (1.01 billion dollars), less than last year, meaning financial institutions will have less burden.
Kim Jin-soo, senior director of corporate financing enhancement division at the Financial Supervisory Service, said, "The number of companies to be put under restructuring increased this year compared to last year, but there are fewer number of D-grade companies," adding, "This year`s corporate restructuring is aimed at turning around companies to help economic recovery."
Six large companies under restructuring this year had received more than 200 billion won in loans. The names of companies remained undisclosed, but few big name companies are known to be on the restructuring list. Some listed companies were included in the list, but constructers were not included.