Korea’s creditor banks have singled out some 30 large firms that should either go through a workout program or be forced out of the market. The names of the companies in question, however, remain undisclosed.
According to banking sources on Wednesday, local creditor banks completed the evaluation of companies whose loans exceed 50 billion won ($47 million) in late June and notified the results to the troubled firms involved.
The creditor banks’ risk assessment rates a company’s financial health status in four grades from A to D. If a company gets a grade of D, representing insolvency, it will be shut down. Those receiving a grade of C for possible insolvency will face comprehensive restructuring programs.
STX Construction, Doosan Engineering & Construction and Kukdong Engineering & Construction are reportedly excluded from the list. There was a market concern that the three builders might get a grade of C or D, but managed to avoid the dreaded classification thanks largely to their self-rescue plans including an injection of fresh funds from their parent companies.
The latest evaluation showed that the number of firms deemed in critical conditions had almost halved, compared to the 64 firms which received C and D grades last year. The improvement is attributed to the ongoing corporate restructuring and a deep cut in the number of assessment fields to 484, down from 782 last year.
The regular evaluation by creditor banks takes into account interest coverage ratio, a measure of a company’s ability to honor its debt payments, and companies whose ratio is below 1 or see their operating cash in negative territory for three years in a row are subject to an extensive evaluation.
As a result of the protracted slump in the real estate market and soured loans to builders in the form of project financing, a significant portion of the companies on the restructuring list are known to be construction firms.
“The builders on the blacklist are not major ones,” said an official familiar with the evaluation. “There won’t be any big names that could attract the attention of the public.”
Meanwhile, creditor banks have just embarked on a risk assessment of small and medium-sized companies whose loans amount to 5 billion won or more.
The number of firms which will go through the evaluation is expected to be around 2,000, little changed from last year. The creditor banks produced a list of 259 small firms that received C and D grades in 2010.
The Financial Services Commission is currently considering alternatives that could replace the corporate restructuring law, which is set to expire in 2014.
