The FSC unveiled a plan to provide financial support in the amount of about KRW1 trillion to companies pursuing business transformation to cope with changing digital and environmental conditions in order to help domestic companies regain their competitiveness edge and expand their business areas.
Background
In the process of responding to the COVID-19 pandemic, the rapidly changing business conditions such as digital transformation and carbon net zero movement have necessitated businesses to make changes at a greater level. Considering a slowdown in the level of business productivity, it has become necessary for companies to proactively seek structural transformation of their business in order to enhance the level of competitiveness.
Measures to Support Business Transformation
Currently, the Ministry of Trade, Industry and Energy (MOTIE)’s standards for approving business transformation activities and the evaluation standards used by financial institutions remain different, so that it has been difficult to provide financing support to those that have been approved by MOTIE.
⇒ Therefore, authorities will strengthen the pre-selection process to ensure that businesses that are eligible to receive financial assistance are selected as the entities pursuing business transformation by introducing a two-staged evaluation process (evaluation of disqualification criteria and evaluation of technological prowess).
a) The business transformation support center will examine the financial conditions of applicants and determine whether there are any reasons for disqualification.
b) A technology credit bureau (TCB) will examine and determine the technological prowess and the viability of business model for those that have passed the evaluation of disqualification criteria.
Through TCB’s technology appraisal, the feasibility of new business model will be evaluated such as the potential for expanding sales, operating profit, etc., and the capability for capital expansion will be evaluated by analyzing financial statement and looking into whether the company has acquired new investors.
Moreover, due to the current shortage in the availability of financing support programs intended for companies pursuing business transformation, the actual provision of support in practice has remained insufficient thus far.
⇒ Therefore, authorities will strengthen the financing support programs intended for companies pursuing business transformation and begin to provide KRW1.0 trillion or more in financing support.
a) KRW220 billion worth of fund will be established for the purpose of investing in companies seeking business transformation.
- The business transformation innovation fund (KRW75.0 billion) overseen by the Korea Institute for Advancement of Technology (KIAT) will invest 60 percent or more of funds in companies pursuing business transformation.
- The business transformation fund (KRW145.0 billion) overseen by the Industrial Bank of Korea (IBK) will invest 50 percent or more of funds in companies pursuing business transformation.
b) KRW700 billion or more in financing support through loans and guarantees will be made available with preferential interest rates, etc.
- The business transformation enhancement support fund (KRW500 billion) overseen by the Korea Development Bank (KDB) will offer up to 1.0 percentage point lower interest rates to those that have been approved for business transformation by MOTIE.
- The business transformation guarantee program (KRW100 billion) overseen by the Korea Credit Guarantee Fund (KODIT) will provide preferential offers on guarantee rates, guarantee fees and maximum guarantee amounts to those that have been approved for business transformation by MOTIE and those otherwise seeking business transformation.
- KODIT will also support the issuance of primary collateralized bond obligations (P-CBOs) in the amount of about KRW100 billion for business transformation of companies that have been approved by MOTIE.
c) About KRW100 billion in liquidity support will also be made available through KAMCO’s purchase and lease of assets owned by those approved for business transformation.
Further Plan
Authorities will begin to implement the evaluation of disqualification criteria and the TCB assessment for qualified entities for businesses selected from September 2022, while continuing to provide assistance to companies seeking business transformation. To continue to provide support for business transformation activities in the future, financial assistance from state-backed financing programs will focus on large-scale, long-term and risk-prone sectors.