Holding a Meeting Between Financial and Construction Sectors... Discussing Support Measures
Business Feasibility Evaluation Criteria and Lender Group Agreement to Be Released in April
Intensive Cleanup of Non-performing Sites to Begin in the Second Half of the Year
The financial authorities will unveil a plan to normalize real estate project financing (PF) in April. In the third to fourth quarters, they will begin efforts to normalize distressed projects.
On the 21st, after the 'Meeting with the Financial Sector and Construction Industry to Promote Real Estate PF Normalization' held at the Housing Construction Hall in Yeouido, Seoul, Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), told reporters, “We will publicize the criteria for project feasibility evaluation and the restructuring plan for the consortium agreement within April.”
Governor Lee explained, “We will seek various opinions from financial companies, construction firms, and associations as early as April and no later than before the end of May. Between May and July, the market should at least accept what restructuring and normalization mean to remove uncertainties.” He added, “If the plan prepared over five months is actually implemented, normalization work can be carried out in the third to fourth quarters.”
Regarding the 'April crisis theory' that mid-sized construction companies will enter court receivership en masse after the general election in April, he dismissed concerns, saying, “There is no need to worry.” He stated, “The possibility of issues acting as systemic risk factors or liquidity crises in construction companies materializing within the first half of the year is low.”
The meeting was organized to discuss support measures such as funding supply for PF projects that are likely to be normalized and to listen to voices from construction sites. Attendees included construction industry figures such as Han Seung-gu, Chairman of the Korea Construction Association; Jeong Won-ju, Chairman of the Korea Housing Builders Association; and Kim Tae-jin, President of GS Construction, as well as financial sector leaders including Lim Jong-ryong, Chairman of Woori Financial Group; Ham Young-joo, Chairman of Hana Financial Group; Lee Seok-jun, Chairman of NongHyup Financial Group; Kim Yong-beom, Vice Chairman of Meritz Financial Group; Kim Sung-tae, President of IBK Industrial Bank of Korea; and Oh Hwa-kyung, Chairman of the Korea Federation of Savings Banks.
In his opening remarks, Governor Lee said, “Currently, the PF delinquency rate in the financial sector is in the high 2% range, which is manageable from a financial system perspective. However, PF projects whose feasibility has significantly deteriorated due to high interest rates and rising construction costs are gradually increasing.” He diagnosed, “Financial funds are tied up in distressed projects for extended periods, placing a heavy burden on both construction companies and financial institutions.”
Accordingly, the financial authorities are encouraging the liquidation and restructuring of real estate PF projects, which have raised concerns following the workout (corporate financial restructuring) of Taeyoung Construction. In particular, they are revising the project feasibility evaluation criteria and consortium agreements to more precisely assess project feasibility and promote the cleanup of distressed projects.
He said, “We will also identify and improve unreasonable systems and practices,” adding, “Through on-site inspections, we will check whether PF interest rates and fees are being imposed reasonably in line with loan risks from the perspectives of fairness and common sense, and we will strive to reduce the financial burden on the construction industry.”
He emphasized, “To activate liquidation and restructuring, the financial sector should continue to create best practices centered on financial holding companies and consider expanding the scale of the financial sector normalization support fund.” The financial authorities plan to additionally raise 20 billion KRW for the credit finance sector fund and 7.57 billion KRW for the savings bank sector fund in April.
He also reiterated that, given the complex interests involved in real estate PF, the financial sector and construction industry must work together to share losses. Governor Lee said, “Considering the complex interests surrounding PF, successful restructuring will require the financial sector and construction industry to make concessions through loss sharing. Once the previously stalled PF projects resume, it will also benefit construction companies and subcontractors.”
Meanwhile, construction industry participants agreed on the need to sort and improve project feasibility through liquidation and restructuring and expressed the opinion that PF funding from the financial sector should be expanded for projects deemed capable of normalization. They also requested improvements regarding cases where PF interest rates and fees are excessively high even for projects undergoing normalization efforts.
Financial sector attendees, including financial holding companies, also pledged to actively discover and promote various restructuring cases such as auctions and sales and to make efforts to normalize real estate PF by supplying funds to normal PF projects. Governor Lee stated, “Currently, opinions opposing maturity extensions are difficult to accept, but if there are reasonable requests for auctions in the future, we will design a structure that can accommodate those opinions.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
