South Korea govt helps ailing Hanbo
South Korea govt helps ailing Hanbo
SEOUL (Reuter): South Korea on Saturday pumped cash into
insolvent Hanbo Steel Co in a bid to resurrect it as the central
bank governor assured investors that the authorities had taken
measures to stabilize the financial market.
State prosecutors, who arrested Hanbo founder Chung Tae-soo on
Friday over a loan scandal involving the steelmaker, widened
their probe to find out if he tried to bribe politicians or
bankers to secure massive loans, a prosecution official said.
"Creditor banks have already provided 50 billion won ($58
million) to help normalize Hanbo Steel," an official of a leading
creditor bank told Reuters.
The money is part of 100 billion won set aside to keep Hanbo
Steel running and to help the company's suppliers weather
difficulties caused by Hanbo's suspension of payments, he said.
"Creditors agree with the government that Hanbo Steel must be
rescued," the bank official said. "That will be the best way for
us to secure better collateral."
Hanbo Steel, South Korea's second largest steelmaker,
defaulted on debt repayments last week after accumulating five
trillion won in loans from 61 banks and financial institutions.
Central bank governor Lee Kyung-shick told a news conference
that creditor banks had agreed to offer fresh loans to allow
Hanbo to complete a new steel mill now under construction.
The rapid expansion of the mill at the southwestern city of
Tangjin is largely responsible for Hanbo's insolvency but
creditors said the construction was at its final phase.
State-backed Pohang Iron and Steel Co, South Korea's largest
steelmaker, said it agreed in principle to run Hanbo Steel on
behalf of its creditors.
The move followed President Kim Young-sam's order on Friday to
draw up measures to keep Hanbo Steel running. The company is the
flagship of the Hanbo Group, South Korea's 14th largest
conglomerate.
Kim said Hanbo's failure, which followed nearly a month of
nationwide labor strife, dealt a blow to the already slowing
economy.
Lee said the Bank of Korea had taken steps to avoid a credit
crunch by managing money supply flexibly and the local money
market remained stable despite the Hanbo problem.
The central bank has released 3.6 trillion won since last week
through money market operations. "The local money market is more
or less stable now," Lee said.
He said the impact from the Hanbo failure was exaggerated in
some international financial markets, including those in Tokyo
and that some overseas branches of South Korean banks faced
difficulty in raising funds.
"Overseas borrowing conditions worsened slightly for some
banks but overall it is not a worrying level," Lee said.
International credit rating companies have placed under review
for possible downgrade the ratings of some South Korean banks
after Hanbo's insolvency was announced last week by its major
creditor banks.
Lee said some South Korean banks would soon sell foreign
securities and other assets to generate funds to support overseas
branches facing cash shortages.
"I think this situation will be resolved soon," Lee said.
Hanbo's creditors have said they will back the company's request
for court receivership by suspending demands for debt repayments.