[3rd Supplementary Budget] 135+a Financial Package Support... Full Effort to Supply Liquidity to Small Businesses and Companies

Plan to expand SPV to 20 trillion won if needed
Support of 6.1 trillion won including rapid corporate bond underwriting and refinancing issuance

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The government will actively support liquidity supply worth 135 trillion won + a to small business owners, small and medium-sized enterprises (SMEs), and companies that are in urgent need of financial support. A budget of 40 trillion won and 42.1 trillion won will be allocated respectively for emergency funding for small business owners, SMEs and mid-sized companies, and liquidity supply for corporations. This is to directly provide liquidity to sectors severely affected by the novel coronavirus disease (COVID-19) crisis.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said at the '2020 3rd Supplementary Budget (Supplementary Budget) Detailed Briefing' held at the Government Complex Sejong on the 29th of last month, "We plan to supply 82 trillion won in liquidity excluding the 53 trillion won supplied by the Bank of Korea and the financial industry among the financial stability support package measures that have already been announced and are being implemented."

First, 40 trillion won in emergency funds will be supplied to small business owners, SMEs, and mid-sized companies. 1.93 trillion won will be supported through equity investment, contributions, and guarantees to the Korea Development Bank, Export-Import Bank of Korea, and Industrial Bank of Korea. For SMEs struggling due to export slumps and other difficulties, 5.4 trillion won in emergency liquidity will be provided.

Additionally, 42.1 trillion won in emergency liquidity will be supplied to key industries and companies severely affected by COVID-19. The government initially established a 20 trillion won Bond Market Stabilization Fund and a 10.7 trillion won Securities Market Stabilization Fund.

The government will also establish a Special Purpose Vehicle (SPV) worth 10 trillion won to purchase non-investment grade corporate bonds and commercial papers (CP). However, if the volume of purchased bonds increases, the government plans to expand the SPV size to 20 trillion won in the future.

The SPV’s funding is structured with 1 trillion won in government equity investment, matched by 1 trillion won from the Korea Development Bank. Additionally, the Korea Development Bank will secure 1 trillion won in subordinated loans for the SPV through the issuance of Industrial Finance Bonds (San-geum-chae). The remaining 8 trillion won will be guaranteed by the Bank of Korea. The 1 trillion won government equity investment will be prepared with 500 billion won each from the 3rd supplementary budget and next year’s budget.

Furthermore, 5 trillion won in funds will be provided to companies affected by COVID-19 through the asset-backed company guarantee (P-CBO) method. The government plans to supply an additional 5 trillion won in 2021. It will also support 6.1 trillion won in funds including rapid underwriting of corporate bonds (2.2 trillion won) and refinancing issuance (1.9 trillion won).