Companies with Full Capital Erosion That Raised Capital via CB or BW Now Eligible for R&D Participation

Companies with Full Capital Erosion Can Now Receive ICT R&D Support if New Investments Are Raised
R&D Expense Burden Eased for Early-Stage Mid-Sized Companies with Annual Sales Under 300 Billion Won

Companies that were previously restricted from receiving government research and development (R&D) support due to full capital erosion can now participate in R&D if they have raised new loans in the form of convertible bonds (CB) or bonds with warrants (BW).

In addition, for early-stage mid-sized companies with average annual sales of less than 300 billion won, the required ratio of R&D expenses they must bear has been eased to 10% or more.

Companies that were previously restricted from government research and development (R&D) support due to full capital erosion can now participate in R&D if they have raised new loans in the form of convertible bonds (CB) or bonds with warrants (BW). Photo by Pixabay

On May 13, the Ministry of Science and ICT announced that it would revise and implement the 'ICT R&D Management Regulations' in this way to improve the conditions for participation of artificial intelligence (AI) and digital companies in information and communication technology and broadcasting R&D (ICT R&D).

The Ministry of Science and ICT first improved the criteria for excluding companies with full capital erosion from preliminary ICT R&D support.

If new loans are raised through debt-type investments such as convertible bonds (CB) or bonds with warrants (BW), these are considered potentially convertible into capital. Therefore, if the financial situation improves after the fiscal year-end settlement, the company is deemed not to be in a state of capital erosion and can receive preliminary ICT R&D support.

The purpose is to increase the survival chances of companies with full capital erosion that have been restricted from preliminary support, since even companies with excellent technology may experience temporary full capital erosion due to the long period required to generate business revenue or due to large-scale investments.

The R&D expense burden for early-stage mid-sized companies will also be eased. Previously, these companies were required to bear at least 13% of the R&D expenses in cash, which was a heavy burden.

With this revision, early-stage mid-sized companies with average annual sales of less than 300 billion won will have their required cash contribution ratio eased to 10% or more, and this is expected to expand their participation in R&D.

This year, the ICT R&D budget, including the supplementary budget for the AI sector, amounts to approximately 1.3506 trillion won. The Ministry of Science and ICT plans to reflect the revised provisions in the announcement of supplementary AI projects as well, to encourage more companies to actively participate in R&D as part of its goal to make Korea one of the world’s top three AI powers.

Park Taewan, Director General for Information and Communication Industry Policy at the Ministry of Science and ICT, stated, "Although some AI and digital companies lack sufficient funds, ICT R&D should serve as a catalyst for those that actively invest in research and development." He added, "Through this institutional improvement, we hope to further vitalize the participation of promising startups and early-stage mid-sized companies in ICT R&D and the commercialization of their technologies, making them central to AI technological innovation."