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More heavily-indebted firms to be under watch by regulator

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(Globalpost/GlobalPost)

SEOUL, Nov. 5 (Yonhap) -- The financial regulator said Tuesday it will put more highly-indebted large firms on the watch list next year to prevent sudden corporate failure following the collapse of some major conglomerates here.

The Financial Services Commission (FSC) said by February 2014 it will lower the lending threshold that classifies a big enterprise as a primary debtor.

A primary debtor refers to a large company with the amount of bank loans equivalent to 0.1 percent of the total lending by local financial institutions.

Under FSC's plans, the loan threshold will be lowered to 0.075 percent to include most likely another 15 firms on the watch list.

The FSC picks the list of primary debtor companies every year, with 30 large firms selected in April for the 2013 list.

If qualified, a debtor company is placed under constant watch by its creditor banks, which can instruct the firm to take measures to reduce debts.

The regulator's move came as South Korea has seen a spate of unexpected defaults by a major conglomerate since last year, with the latest default by Tong Yang Group rattling the local financial market and inflicting heavy losses on individual investors.

The 38th-largest firm in Korea has been placed under debt restructuring after it failed to repay its debts in late September. That came only months after STX Group, the 13th-biggest conglomerate, went under in April on cash shortages.

Following the bankruptcies, it became a matter of the utmost importance for the financial authorities to overhaul the corporate debtors since they faced criticism that the list doesn't reflect the companies' finances that entail potential and imminent risks.

As part of efforts to beef up the system, the regulator will also push for requiring debtor companies to post details on their borrowings they raised through direct financing such as commercial papers.

Until now, any types of debt other than bank loans were excluded from the regulator's evaluation on the primary debtor companies.

The FSC will also create a secondary corporate watch list, besides the primary debtors, as a potential debtors group that may need a preliminary assessment by creditor banks to prevent a worsening in their finances, according to the regulator.

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