New reform plan puts 500 firms on alert

With the government's announcement of renewed efforts to re-evaluate the businesses to be supported or liquidated, an alarm has sounded among businesses as the government prepares for the second phase of business restructuring.

About 500 of the businesses that made the list of companies considered to have high degrees of moral hazard, including those under the government workout program, currently under court receivership, or in negotiation with the government for normalization, have been on the edge fearing inclusion in the businesses to be liquidated.

"There are many companies that came under the government workout program due to their low-interest debt obligations, and it led to a general lack of the business restructuring," a source at a company that has been under the government workout plan for the past two years said. "The anxiety pervades throughout all the companies currently under the workout program, as none is confident it will escape government liquidation."

The anxiety also is felt by many of the large conglomerates.

"It is time for the conglomerates to be anxious," Financial Supervisory Committee chairman Lee Keun-Young said, sparking fear among many in the business field.

Many in the business circle predict the new phase of restructuring will take on an added vengeance after a long hiatus due to the April 13 general election, as well as the Daewoo and Hyundai crises. Business leaders have laid anxious eyes on whatever clue might reveal their placement on the list.

The major business groups have judged that the companies with debt repayment ratios of less than 1, which means they are unable to meet their debt obligations through their operating profits, and the companies whose bonds are considered at-risk or speculative would be targeted for liquidation. As such, they have begun thorough examinations of their affiliates.

Especially in the case of construction companies, they have formulated an explanatory proclamation stating that the current financial woes of the construction industry arose from the general slowdown of the economy and that a little financial support from the banks soon could lead to recovery.

A number of the large constructions companies that had plans for major layoffs but had delayed the implementation of the streamlining due to various internal conflicts, have decided to push through with their plans along with the announcement by the government for the second phase of business reform.

Amid the announcement for the second phase business restructuring, there are voices warning of a dangerous shock to the financial market.

"If the government handles the problem of the nonviable businesses quickly, it will have a positive effect on the market by alleviating the uncertainty principle,¡± Michael S. J. Kim, assistant secretary general of the Federation of Korean Industries said. ¡°However, there is a danger of harming viable businesses as the current market is extremely delicate."

Companies that are viable and well-functioning but have suffered liquidity crunches due to the financial crisis are optimistic. Through the second phase restructuring and the liquidation of the nonviable businesses, they expect the financial market to gain more stability and their worth expressed in the stock market gains.

Lee Byong-Ki eye@donga.com