Low Utilization of Draft Fund... Maintaining Threshold and Extending Deadline (Comprehensive)

Extension of Draft Fund Application Deadline Until Year-End
Despite 40 Trillion Won Scale... Low Utilization Sparks Controversy

[Asia Economy Reporter Park Sun-mi] The government and financial authorities have decided to maintain the application requirements for the Industrial Stabilization Fund as they are and only extend the deadline until the end of the year. Although there were discussions about expanding the eligibility criteria due to criticisms that the fund’s threshold was too high and thus ineffective, they ultimately decided to stick with the existing plan. As a result, it is expected that the number of companies eligible for support in the future will remain limited.

According to the financial sector on the 13th, the application period for the Industrial Stabilization Fund, which was scheduled to end this month, will be extended until the end of the year. Considering the prolonged COVID-19 situation, the government and financial authorities plan to announce soon, after detailed coordination, that the application period will be extended until year-end.

Accordingly, the operation period of the support program for period industry partner companies, which was set to end this month, is also likely to be extended until the end of the year. The financial authorities have been reviewing whether to extend the application deadline for the fund, which is due at the end of April, and whether there are ways for the fund to help companies rebound after COVID-19. The Ministry of Trade, Industry and Energy reportedly suggested during a series of consultations with financial authorities that instead of operating the fund tightly, it might be necessary to consider expanding the scope of supported industries to allow broader support if there is demand.

However, during the discussions, the plan to lower the application threshold and expand the support target was not ultimately adopted. An official said, "The discussion concluded to extend only the period without relaxing the application requirements, and only final coordination with the government remains."

KRW 40 Trillion Scale but... Low Utilization Sparks Controversy

Given the potential controversy over the use of the Industrial Stabilization Fund, it is analyzed that the decision was made to maintain the existing application requirements and only extend the deadline, rather than providing indiscriminate support, so that companies meeting the criteria can rebound amid the prolonged COVID-19 situation. As rumors circulated that the government and financial authorities were discussing easing the application requirements, some expected that Ssangyong Motor, which is facing a court receivership decision, might be included as a beneficiary of the fund.

With the Industrial Stabilization Fund deciding to keep the existing application requirements and only extend the deadline, the controversy over its effectiveness due to low utilization is expected to continue.

The Industrial Stabilization Fund was launched in April last year with a scale of KRW 40 trillion to provide necessary funds to companies in nine industries hit by COVID-19, including aviation, shipping, automobile, shipbuilding, machinery, steel, refining, aircraft manufacturing, and petrochemicals. So far, it has supported KRW 300 billion and KRW 32.1 billion to Asiana Airlines and Jeju Air respectively, and KRW 282.1 billion to period industry partner companies, totaling KRW 614 billion. This corresponds to a utilization rate of about 1.5%.

Support is limited to period industries affected by COVID-19 with more than 300 employees and total borrowings exceeding KRW 500 billion, and the fund requires passing the Industrial Stabilization Fund Review Committee’s screening, making the application threshold very high and drawing criticism.

With the failure to lower the fund’s threshold, the ‘Corporate Asset Sale Support Program’ operated by Korea Asset Management Corporation (KAMCO) since July last year is expected to be actively utilized to support industries affected by COVID-19. The Financial Services Commission has announced that it will support corporate liquidity and stabilize management in vulnerable industries this year through the Corporate Asset Sale Support Program. A total of KRW 1.1 trillion was supported last year.