HUG Eases PF Guarantee Contractor Requirements to Support Financing for Small and Medium Construction Companies

[Asia Economy Reporter Noh Kyung-jo] The Korea Housing & Urban Guarantee Corporation (HUG) announced on the 29th that it will relax the contractor requirements for project financing (PF) guarantees from the current top 500 in construction capability evaluation rankings to the top 700. This measure aims to expand financial support for small and medium-sized construction companies.

PF guarantees are guarantees that take responsibility for the principal and interest repayment of loans obtained by project operators to finance project costs such as land costs, secured by the future cash inflows and feasibility of housing construction projects. HUG launched the related product in 2004.

With this relaxation of guarantee requirements, small and medium-sized construction companies will be able to use HUG's 'Standard PF.' HUG expects that this will enable project operators to raise funds at lower financial costs.

The Standard PF is a system that standardizes and optimizes PF loan conditions to provide benefits such as low loan interest rates and exemption from financial institution fees. Earlier, in June, HUG allowed Standard PF users to subscribe to products with an additional interest rate of about 1.5% per annum over the 3-month CD rate through the re-selection of managing financial institutions.

The relaxed guarantee requirements will apply to new guarantee applications submitted from the 4th of next month. Kwon Hyung-taek, President of HUG, said, "We have created an opportunity for small-scale housing projects involving small and medium-sized construction companies to raise funds at low costs if the projects have good feasibility," adding, "Going forward, while strengthening guarantee risk management, we will consider lowering the guarantee threshold so that housing project operators can receive practical support."