Public firms' debts soar under previous administration

SEOUL, June 12 (Yonhap) -- South Korea's major public companies saw their debts shoot up over the past four years as they were forced to undertake government-initiated or economically nonviable projects, the state auditor said Wednesday.

The combined debt of 28 state corporations totaled 393 trillion won (US$348 billion) at the end of last year, up 8.7 percent from a year earlier and more than double the level four years ago, according to a report by the Board of Audit and Inspection (BAI).

The report was the result of a comprehensive BAI probe into the country's nine major public companies and the three relevant ministries of finance, land and economy under the previous Lee Myung-bak administration for about two months from September 2012. Lee led the country for five years from 2008.

According to the report, the government overstretched the public firms by having them carry out state projects whose profit estimates were exaggerated, while not providing the companies with adequate financing.

For example, the land ministry in 2008 planned to build massive public housing units. However, the project lacked proper demand analysis and parts of the project were delayed or canceled due to a lack of financial resources and sufficient demand, which caused LH Corp., a state land and housing developer, to incur more debt.

Of the country's public firms, LH had the largest amount of debt totaling 138.1 trillion won at the end of last year, up 5.8 percent from a year earlier.

In a separate case, the Korea Water Resources Corp. (K-Water) failed to get enough support from the government to carry out the four rivers refurbishment project.

In 2009, the government issued corporate bonds to K-Water to cover the costs of the project and decided to devise detailed measures later to make up for its possible shortfall. But the land and finance ministries have not properly backed it, causing K-Water's debts to grow more than six-fold in four years to 1.3 trillion won in 2012.

As a trademark of the previous Lee Myung-bak administration, the mega project costing 22 trillion won (US$19.5 billion) is aimed at helping prevent floods and promote tourism along the country's four major rivers - the Han, Nakdong, Kum and Yeongsan.

But it has long drawn criticism for allegedly causing irreversible environmental damage and other suspected irregularities on the course of the construction of relevant structures.

The public firms under scrutiny also spread themselves too thin by investing in developing resources overseas in an inefficient fashion and launching multiple projects without careful analysis, the audit agency said.

Though the government made it compulsory for public firms to draw mid- to long-term financial management plans, some entities painted "too rosy (of a) picture" based upon unrealistic prospects, according to the auditor.

"We notified the relevant ministries to come up with supportive measures to help reduce the debts of the public firms and to explore ways to manage their financial status more strictly," the BAI said in a statement.

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