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.