Korea Launches Bond-Buying, Asset-Buying SPVs

Source: Regulation Asia Editors, Regulation Asia 2020-07-20

Korea Development Bank is operating an SPV to buy low-rated corporate debt. KAMCO is separately being deployed to buy up corporate assets at fair prices.

South Korea formally launched two separate programmes aimed at supporting businesses facing liquidity problems amid the Covid-19 pandemic.

In May, the government, BOK (Bank of Korea) and KDB (Korea Development Bank) announced a plan to create a special purpose vehicle to buy lower-rated corporate debt with maturities of up to three years. The target debt include corporate bonds rated AA to BB, commercial paper rated A1 to A3, and ‘fallen angels’ rated BB and under due to Covid-19 related factors.

Korea’s third supplementary budget at the National Assembly earlier this month provided KRW 1 trillion in funding to the KDB for the SPV; the BOK has announced a decision to lend KRW 8 trillion towards the fund; and a further KRW 1 trillion is coming from subordinated loans from KDB – amounting to a total KRW 10 trillion.

Ahead of the formal launch on 14 July, the KDB already bought KRW 300 billion worth of low-rated corporate bonds to help stabilise markets.

The SPV will operate the bond-buying programme for six months until 13 January 2021, at which point a decision will be made on whether to extend its operation, and whether to increase its size to KRW 20 trillion.

A separate initiative only announced last month, Korea will deploy its state-run distressed asset manager KAMCO to buy up corporate assets at fair prices, to address asset sell-offs by cash-strapped companies merely looking to stave off a liquidity crunch.

The supplementary budget provided KRW 50 billion in funding for the corporate asset purchase programme, which began accepting applications from companies wishing to participate on Friday (17 July).

Based on urgency, efficacy, fairness and impact on the real economy, KAMCO will review the applications and decide on the appropriate price to offer for assets based on appraised values suggested by external accounting firms and advisors.

KAMCO will allow companies the option of leasing back their assets for corporate use, or buying back the assets at a later date.

SPV

Liquidity

Korea Launches Bond-Buying, Asset-Buying SPVs

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