Mandatory External Expert Agency Feasibility Evaluation Included
"Properly Sorting the Wheat from the Chaff"
All financial sectors have come together to revise the creditor consortium agreement as a follow-up measure to ensure the smooth landing of real estate project financing (PF). The revision includes mandatory PF feasibility evaluations by external professional institutions when maturity extensions occur two or more times. Financial authorities expect that projects deemed feasible will have stable operations, while indiscriminate maturity extensions or interest deferrals for projects with low feasibility will decrease.
On the 27th, representatives from 11 associations and central organizations, including the Korea Federation of Banks, and 7 related agencies held a permanent PF creditor consortium meeting and revised the PF creditor consortium agreement across all financial sectors.
First, the agreement mandates a PF feasibility evaluation by external professional institutions when maturity is extended two or more times, and raised the consent threshold for maturity extension from two-thirds (2/3) to three-fourths (3/4). The decision on maturity extension must be made by a voluntary council composed of creditor financial institutions after reviewing the feasibility evaluation results from external professional institutions such as accounting firms and credit rating agencies. When maturity extension is granted following a feasibility evaluation, sufficient time will be provided considering the evaluation results and the borrower's (developer's) business plan.
The agreement was revised so that interest deferral is, in principle, allowed only when overdue interest already incurred is repaid. However, if the borrower repays at least 50% of the overdue interest at the time of interest deferral and submits a repayment schedule for the remaining overdue amount, the voluntary council may consider this and decide on the interest deferral. Additionally, to enable continuous monitoring of PF project restructuring and resolution status, details of maturity extensions and interest deferrals (including detailed review materials) must be promptly reported to the PF creditor consortium secretariat.
With this revision, projects judged feasible by external professional institutions will be granted sufficient maturity extension periods, enabling stable project operations. Indiscriminate maturity extensions and interest deferrals for projects with extremely low feasibility are expected to decrease. Individual PF creditor consortium agreements for each financial sector, including savings banks, specialized credit finance companies, and mutual finance institutions (credit unions, NongHyup, Suhyup, and the Korea Federation of Forest Cooperatives), are also scheduled to be sequentially revised by early next month.
Since the revision and implementation of the PF creditor consortium agreement across all financial sectors in April last year, creditor financial institutions have been promoting smooth normalization and restructuring of PF projects according to the system and procedures stipulated in the agreement. Savings banks, specialized credit finance companies, mutual finance institutions (credit unions, NongHyup, Suhyup, Korea Federation of Forest Cooperatives), and Saemaul Geumgo have supported PF projects through individual sector-specific PF creditor consortium agreements.
When a developer applies for the application of the agreement, the voluntary council composed of creditor financial institutions reviews the submitted project normalization plan and decides whether to initiate joint management. If the developer (borrower) violates the special agreement concluded with the voluntary council or if the project’s normalization prospects are deemed slim, the joint management procedure under the agreement may be suspended.
Regarding the progress of the PF creditor consortium agreement, by March of this year, 484 projects (183 under the financial sector agreement and 301 under individual sector agreements) have applied for the application of the agreement. Among these, 30 projects were judged to have low normalization prospects and their joint management procedures were rejected. Of the 443 projects where joint management procedures were initiated, 99 projects were deemed difficult to proceed normally due to deteriorated feasibility, resulting in suspension of joint management procedures, thus progressing the ‘sorting out’ of projects.
Currently, 329 projects are undergoing joint management procedures under the agreement. The financial support status for these projects shows that maturity extensions are the most common with 263 cases, followed by 248 cases of interest deferral, 31 cases of interest reduction, and 21 cases of new funding support.
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