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Biz News Korea(Eng)

KDB to buy unsold bonds and private debt be allowed to help small, mid-sized firms

Collected: 2016.07.05

Distributed: 2016.07.07

Source: Go Direct

South Korea’s state-run Korea Development Bank (KDB) will buy up to 500 billion won ($434.9 million) worth of bonds that remain unsold in the market after they were issued by quasi-blue chip companies and smaller but sound businesses. A new type of fund will be introduced allowing non-banking investors to lend funds to companies as less riskier option than equity and bond investment.

The Financial Services Commission announced new measures designed to make fund-raising easier for small and medium enterprise. The KDB program targeting corporate bonds rated between ‘BBB’ and ‘A’ will last for two years.

To this end, KDB’s special purpose company will acquire up to 30 percent of outstanding bonds by a company and hold them until maturity or resell them in reinforced creditworthiness through its backing.

“This measure is part of new aid program for small and mid-sized enterprises to weather challenging business environments of these days, said Lee Hyung-joo, head of the FSC’s capital market affairs.

The FSC will also allow sales of private debt fund that pools in capital from institutional investors to lend to companies. Since it is in the form of loan, the investment can be less risky than equity or bond investment although the yields may not be that high. Private debt has become rising means of steady returns for institutional investors and fund-raising option for small and mid-sized enterprises.

Hedge funds would be allowed to lend out the entire capital of a fund and private equity funds up to 50 percent. Individuals won’t be able to invest in the fund as they have less accessibility to corporate information.

By Choi Jae-won and Chung Seok-woo

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