IFC to set up $500 million fund to aid Asian firms

IFC to set up $500 million fund to aid Asian firms

WASHINGTON (Bloomberg): The International Finance Corp., the
private lending arm of the World Bank, is setting up a US$500
million fund to aid companies in South Korea, Thailand, and
Indonesia deal with massive debts.

The fund, part of a $10 billion U.S.-Japan initiative to shore
up Asia's ailing companies and banks, will provide capital
infusions into companies to restructure debts, fund new projects,
and entice investors back.

"The need will be quite significant in terms of equity
(investments) in the region," Hany Assaad, manager of the IFC's
capital markets division for South Asia and Southeast Asia, said
here on Friday.

"We're interested in investing in companies that have good
potential, globally competitive, and with some money will be able
to come out of the crisis in a much stronger position."

Investments would be made in all types of companies as long as
they have strong management structures, said Assaad. That's
because many South Korean companies ran into trouble last year
when poor management forced them into bankruptcy.

Creation of the fund suggests the credit crunch strangling
these countries could be subsiding. International Monetary Fund
officials have said recently the economic crisis in the region
appears to be bottoming out.

For its part, the IFC will contribute between $50 million and
$75 million to the fund, said Javed Hamid, director of the IFC's
East Asia and Pacific division. "That would be sufficient to
mobilize other support."

The fund could expand to $1 billion depending on investor
interest, Hamid said, with contributions from other international
financial institutions such as the Asian Development Bank and
commercial sources. Japan will likely contribute too, he said.

The IFC is talking with private investment firms in the U.S.
and in Asia to find one to manage the day-to-day operations of
the fund, which could be operational by June.

Agreed

The U.S. and Japan agreed earlier this week to team up with
the Asian Development Bank and World Bank to pull together at
least $10 billion for ailing companies and banks in Asia.

Under that plan, U.S. agencies will provide new trade credits,
risk insurance and project financing worth more than $5 billion,
while Japan will give the ADB $3 billion to guarantee bond sales
by companies. The two governments and other lenders will seek to
raise at least $2 billion more from other creditors.

This isn't the first IFC investment in companies or banks in
the region. The IFC already agreed to invest $372 million in
Korean companies such as Korea Long-Term Credit Bank Honam
Petrochemical Corp. The Korean finance ministry has said six more
IFC investment projects are expected. Bing Grae Co., a noodle
maker in Korea, said the IFC may buy a $17 million stake and
extend $12 million more in loans.

Korean companies need the money. About 2,000 firms have
collapsed each month this year because they couldn't repay debts
amid the nation's deepest recession since the 1950-1953 Korean
War. Korean assets lost about a third of their value in dollar
terms in the past year as the won tumbled.

Although the fund is designed to aid companies in South Korea,
Indonesia, and Thailand, companies in the Philippines and
Malaysia could receive help from the fund as well.

South Korea, Thailand, and Indonesia turned to the IMF and
World Bank when they spent billions trying to defend the value of
their currencies and repay mounting short-term debts.

Companies in these countries are strapped for cash as few
investors have returned after the crisis. Companies in Indonesia,
for example, had about $65 billion worth of debts when the
government appealed to the international community for a $40
billion rescue package.