No Requirement for Business Normalization Plan When Simply Extending Maturity
#. Recently, the construction project of A Officetel was suspended due to reasons such as rising construction costs, resulting in arrears. Many savings banks within the lending consortium believed that the project could be normalized with additional funding support. However, some savings banks continued to oppose additional funding due to a lack of internal justification for supporting the delinquent project, causing the project to be halted. On the 7th, the Financial Supervisory Service (FSS) stated, "With the application of the revised voluntary agreement to such PF projects, it is expected that funds will be smoothly supplied based on clearer support grounds such as project normalization plans and special agreements, enabling the project to be normalized."
The savings bank industry, the Korea Federation of Savings Banks, and the FSS have simplified the procedures of the 'Savings Bank PF Loan Voluntary Agreement' created to support the smooth normalization of real estate PF (Project Finance) projects. The FSS announced that it has drafted a revision containing these details.
The 'Savings Bank PF Loan Voluntary Agreement' is designed considering that about 60% of PF project consortia are composed solely of savings banks due to their characteristic of mainly handling relatively small-scale PF project loans. The existing voluntary agreement consisted only of minimal content such as target claims and voting methods, but this time, to enable prompt support for PF projects, detailed procedures for agreement operation and measures to enhance effectiveness were supplemented.
First, to enable prompt funding support before deterioration for temporarily struggling normal projects, pre-support grounds and related procedures were simplified. Through the voluntary agreement, new funds will be provided to projects experiencing temporary difficulties before arrears occur, and the requirement for a project normalization plan upon simple maturity extension has been omitted. Grounds for debt restructuring for projects with arrears but potential for normalization were also established.
To enhance the effectiveness of the voluntary agreement, binding force among creditor savings banks will be strengthened by imposing liability for damages if decisions of the creditor consortium voluntary council are not implemented. Regarding non-performing claims arising after project normalization support under the agreement, exemption grounds for related employees of creditor savings banks will be provided unless there is intentional or gross negligence.
The lead manager selection procedure prioritizes the existing PF lead manager and agent bank as the lead manager of the creditor savings banks voluntary council, with changes allowed through consultation if necessary. Additionally, procedures related to convening, operating, and reporting obligations of the creditor savings banks voluntary council have been specified, and grounds for suspending project normalization support procedures have been established. The burden-sharing standard for support funds clarifies that the burden of creditor savings banks for new funding support will, in principle, be shared according to the existing participation ratio.
A consultation procedure has also been created to facilitate smooth consensus among the entire lending consortium by forming joint consortia with other financial sectors. Meanwhile, the Financial Supervisory Service and the Korea Federation of Savings Banks plan to implement incentive schemes for the voluntary agreement’s execution to ensure smooth operation in the field.
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