Subcontractors hit by financial crunch

The government is planning to encourage financial institutions to discount promissory notes that subcontractors have received for their sales or construction works even though the insolvent large companies will be ousted from the market.

Also, the bankruptcy of 200 large companies that are subject to shutdown will be put off to the end of November, when decision about target companies will be completed.

For companies such as Hyundai Engineering and Construction, Dong-A Construction and Ssangyong Cement, which have a great impact on the financial market, would be saved through equity investments by financial institutions. But their capital will be reduced and their management dismissed to take responsibility for their poor operation.

A high-ranking official of the Financial Supervisory Service said that the government is working out a series of contingency plans in order to prevent a freeze of the capital market.

He noted that some banks are opposing the idea of discounting genuine promissory notes or postponement of bankruptcy due to their loan policy.

"However, they agreed that it is not desirable that some unrelated companies are damaged by the liquidation of insolvent corporations, so most banks are likely to follow the government's recommendations," he said.

He explained that banks have their own complicated criteria to select target companies for liquidation, noting that the probability of survival just with the rollover of the existing loans would be the barometer for selecting the target companies.

Hong Chan-Sun hcs@donga.com