Asia Recovery?

Henry C.K. Liu hliu at
Thu Apr 15 20:35:13 PDT 1999

Bloomburg Top Financial News

Thu, 15 Apr 1999, 11:26pm EDT

South Korea Bankruptcies Rise for First Time in 8 Months Amid Anam Failure

Seoul, April 16 (Bloomberg) -- South Korean bankruptcies in March rose for the first month in eight, as Anam Electronics Co. and other large companies failed, because banks are less willing to renegotiate loan repayments.

The number of bankruptcies rose one-quarter to 704 in March, from 556 in February. Still, that's the third lowest monthly total in five years, bettered only in January and February this year, the Bank of Korea said.

Even so, the turnaround in March may be a signal that banks will be increasingly reluctant to help the weak companies they supported through the nation's worst recession in almost a half- century, and prompt ailing companies to restructure.

``Banks are becoming more selective about their bailout programs for companies,'' said Shin Hu Shig, an economist at the Daewoo Economic Research Institute. ``As the economy recovers, the government seems to have changed its policies to focus on corporate restructuring, rather than keeping non-viable firms afloat.''

That's forcing some companies to go under. Anam Electronics creditors last month refused to extend the television and audio-maker's loan repayments because they doubted its ability to keep going. It was forced to apply for receivership.

Kyunggi Chemicals Ltd.'s bankers also canceled plans to give the fertilizer maker more time to pay its debt, pushing it into bankruptcy.

Having survived last year's financial crisis and improved their balance sheets, Korean banks are now less reluctant to set aside the loss provisions they must make when they decide not to roll over non-performing loans.

No More Favors

``Bankruptcies could go up in coming months because weak companies will get no more favors like they had last year,'' when the government was trying to curb the number of companies going bankrupt,'' Shin said.

For sounder companies, the outlook is better. The ratio of promissory notes in default against total notes on issue, a key measure of corporate solvency, rose 0.01 percentage point to 0.11 percent last month.

And growing optimism about a the economy's rebound from the recession is encouraged more Koreans to start up new businesses.

The economy expanded at an annual 3.1 percent pace in the first quarter of this year, and the central bank said it will expand 3.8 percent in 1999, faster than its previous forecast of 3.2 percent.

The ratio of newly established companies against insolvent ones in the nation's seven biggest cities soared to the second highest ever reading of 10.1 last month, up from 8.7 in February. The ratio averaged 3.4 in 1997 and 2.6 in 1998.

The central bank said the number of new ventures with more than 50 million won ($44,600) of capital, totaled a record 2,572 in March, versus 1,830 in February.

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