New Facility Investment Fund

Korea Development Bank, Industrial Bank of Korea to create 2 tln won facility investment fund

The Korea Development Bank plans to form a 2 trillion won fund jointly with the Industrial Bank of Korea to support corporate facility investments this year aimed at creating jobs and economic recovery as part of the 5 trillion won in corporate facility investment funds to be set up this year, the bank announced recently.
KDB will chip in 1.4 trillion won and IBK will contribute 600 billion won for businesses to invest in their facilities. KDB will dish out 600 billion won in loans by October and the rest will be handled by a policy financing company to be set up later, the bank said.
The banks will select the borrowers through credit analyses and part of the fund will also be provided to asset management and private equity funds operated by securities firms as a diversified way to supply the fund directly and indirectly.
Both KDB and IBK will make loans to corporate borrowers depending on the results of their credit standings in a variety of manners including investments in stocks both common and preferred, bonds and convertible bonds among others. Loans will be made in a number of foreign currencies including the U.S. dollar, yen, Euro and others, depending on the borrowers needs.
KDB will make loans to businesses that want to invest in new growth engine businesses, build infrastructure or invest in business areas of great risks or of such a large scale of investment that funding is necessary. IBK will make loans to SMEs that lack funds but are rich in technologies.
Both banks will provide funds to securities firms that need funds to form PEFs, up to 40 percent of their funding needs if the loans are intended for facility investments.
Loans provided to PEFs will depend on the scale of the funds, track records of borrowers and fees as analyzed by both KDB and IBK.
As private firms may be able to invest in PEFs, the facility investment fund will exceed the initial 2 trillion won amount.
The details of the terms and conditions on loans from the Fund will be determined jointly by KDB, IBK and the Korea Financial Investment Association. PEFs will make loans or investments in such areas as bonds, common stocks, long-term bonds and convertible bonds. Both KDB and IBK have set up special teams in charge of handling the Fund and have already contacted such business organizations as the Federation of Korean Industries, the Korea Chamber of Commerce and Industry and the Korea Small and Medium Business Association to find out about potential borrowers for the Fund.
The Fund is to be officially made available to corporate borrowers from September following the completion of all preparations including an intensive ad campaign jointly with the FKI and KCCI, especially on the qualifications required to borrow from the Fund.
Indirect fund supply through private financial firms will be explained through the Korea Financial Investment Association and applications from private financial firms have been accepted since August.
Both KDB and IBK continue to work on the formation of PEFs to meet the funds required for facility investments by businesses this year with funds provided by the National Pension Service and institutional investors to amply meet the corporate fund requirement for facility investments.
The Fund is expected to be a boon for corporate facility investment as it will supply tailor-made funds to businesses to make investments in new facilities, thereby boosting the nation’s competitiveness with its growth engines made strong and, in the process, helping the economy break out of its slump and resurge.
The government is to set up a financial entity to make policy loans to businesses in October to relieve any inconvenience to corporate borrowers in need of public funds to sustain their operations. The projected new financial company will create the first case of cooperation with KDB as a new state-run financial entity. nw

Gov. Min Euoo-sung of Korea Development Bank.

The KDB building in downtown Seoul.