South Korea to launch $7bn special-sits fund

The country’s financial regulator plans to mandate private equity financing for troubled companies.

South Korea’s Financial Services Commission (FSC) has announced plans to establish an 8 trillion won ($7 billion; €6.5 billion) funds to co-invest with private equity firms in company restructurings.

In a meeting with chief executives of the nation’s leading banks in mid-April, the FSC outlined the need to implement a “market-based” approach to corporate restructuring, including private equity funds playing a bigger role in such cases.

The fund will be structured as a master-feeder fund into which state-run banks – Korea Development Bank, Export-Import Bank of Korea and Industrial Bank of Korea – pension funds and commercial banks will contribute half of the money to create a fund of funds. Their contributions will be matched by feeder funds, raised by private asset managers and investors, to take over struggling companies, an FSC spokesman told pfm.

The FSC intends to reform the current approach which is led by creditor banks, who previously relied on bank loans and who are increasingly using capital markets for fundraising, issuing corporate bonds or commercial papers.

Banks will be required to strictly evaluate whether a troubled company’s line of credit can turn the company around. If not, the company should “swiftly turn to alternative schemes such as a takeover by [private equity funds] or court receivership,” the FSC said in a press release.