High Tension in the Venture Business

The funding of over 2 trillion won that the government has supported venture companies with through the Korea Technology Credit Guarantee Fund (KOTEC) is expected to expire from May through the end of this year, and the venture business which has to pay it off is uptight.

Due to the venture bubble bust and the prolonged recession, the venture business is having serious financial problems in which many companies will have difficulty paying back, and there are possibilities of a series of bankruptcies. There are even words of a “May venture shake-up.”

According to the Finance-Economy Ministry and the KOTEC yesterday, the government has given support totaling 2.3234 trillion won in funds six times from May, 2001 through December, 2001 to 808 venture companies and 42 small and medium-sized export enterprises.

The fund-supporting at that time was done by KOTEC, the government’s financial organization, and stood surety at the primary Collateralized Bond Obligation (CBO). Its expiration is in three years starting this May.

From this newspaper’s coverage, the principal and interest that the KOTEC has to receive totals some 2.3 trillion won, excluding the early repayment of 160 billion won from seven companies as of last March 22. It is an average of 2.73 billion won per company.

Relating to this matter, a KOTEC official said “It has been confirmed that 420 billion won cannot be repaid due to bankruptcy, and when totaling future additional losses, a loss of 625.5 billion won, 27.2 percent of the total principal and interest, is expected.”

However, with the continuous bankruptcies of venture companies and worsening financial problems, the venture and financial industry expects the loss to become even bigger. An ‘A’ credit rating company official said, “Blue-chip companies also show difficulty paying back by the due date, and it seems that more than half will not be able to pay off.”

The venture companies who received support at that time were in a better situation comparatively, and if they suffer a series of bankruptcies, there are concerns that it may lead to the collapse of Korea’s venture industry.

If indiscriminate support, such as that given in the past, is repeated, it will pressure the government’s finances and, in the long term, worsen the venture industry’s crisis, making it tough to settle.

Kang Won, senior researcher at the Samsung Economic Research Institute, stressed, “If the government and KOTEC unconditionally give support to revive the venture companies, it will be repeating the Kim Dae-joong government’s mistake. The wheat must be separated from the chaff, and this opportunity must be taken to strengthen the competitiveness of the venture industry.”

Collateralized Bond Obligation (CBO) is issued when several companies bind newly issued corporate bonds, and this is given as security. This is a financial technique to supply funds by a joint burden when the individual company’s credit rating is low and there is difficulty issuing a corporate bond.

Keuk-In Bae Joong-Hyun Park bae2150@donga.com sanjuck@donga.com