Dokyu-sang "Minimizing Burden on Downgraded Credit Companies... Expanding Support Limits for SME P-CBOs" (Comprehensive)

"Illegal Short Selling Penalized Up to the Maximum Legal Limit"

Dokyu-sang, Vice Chairman of the Financial Services Commission [Photo by Yonhap News]

[Asia Economy Reporter Kwangho Lee] Financial authorities will expand the support limits for the bond-backed bond (P-CBO) program and the support targets for corporate bonds and commercial paper (CP) programs to enable companies with downgraded credit ratings to smoothly raise funds in the market. In addition, in line with the resumption of short selling, they plan to impose sanctions up to the maximum limit allowed by law if illegal short selling is detected.

On the 3rd, Do Kyusang, Vice Chairman of the Financial Services Commission, held the "39th Financial Risk Response Team Meeting" at the Government Seoul Office and stated, "Concerns have been raised that vulnerable sector companies, which may face credit rating downgrades due to sales declines caused by the prolonged COVID-19 pandemic, could experience difficulties in raising funds."

Vice Chairman Do emphasized, "In principle, the corporate bond and CP markets will operate according to market principles, but we will expand the support limits of the P-CBO program for low credit rating (BB rating) small and medium-sized enterprises and also expand the support targets of the corporate bond and CP refinancing support programs."

He added, "To increase the utilization of the corporate bond and CP refinancing support programs, we will support not only refinancing issuance but also new issuance, and support private placement bond issuance for refinancing purposes to actively assist companies facing difficulties in raising funds."

Vice Chairman Do also expressed, "Through close consultations with the financial sector, we will ensure that small and medium-sized enterprises and small business owners, whose operations have temporarily deteriorated, do not bear excessive burdens due to credit rating downgrades."

He explained, "First, when banks and other financial institutions assess the credit ratings of small and medium-sized enterprises and small business owners, they will actively consider the recovery potential in response to changes in the COVID-19 situation. Even if credit ratings inevitably decline, for normal borrowers without delinquencies or defaults, we plan to minimize disadvantages caused by the downgrade."

Furthermore, he added, "Details of each measure will be announced through a separate press release within this week."

At the meeting, measures to strengthen support for innovative companies were also discussed.

Vice Chairman Do said, "To enhance the predictability of the selection and support of the 'Innovative Companies National Representatives 1000,' we will prepare special financial support guidelines for the Innovative Companies National Representatives 1000. During the selection phase, we will evaluate companies' innovativeness and technological capabilities, while also considering disqualifying factors for financial support such as credit watch information and capital erosion to ensure efficient support."

He also mentioned, "At the financial support stage, we will actively support companies' innovation efforts by expanding loan and guarantee limits based on the innovativeness and technological capabilities of the selected companies."

In particular, he stated, "To enable the Industrial Stability Fund to play a more active role, we will improve the current industrial cooperation partner support program to operate loan purposes, loan periods, and installment repayment methods more flexibly."

Vice Chairman Do concluded, "From today, the partial resumption of the short selling ban in the stock market, which lasted for about 14 months since March 16 last year, will begin. As penalties, detection, and monitoring of illegal short selling have been strengthened, illegal activities in the domestic market can be eradicated. We will actively respond by imposing sanctions up to the maximum limit allowed by law against market disruption activities."