`Debt Reduction Is Necessary for Chaebol's Survival'

Article excerpt

Large conglomerates, or chaebol, will have to reduce their debt-to-equity ratios below the internationally approved level to be more competitive in the international market, said Lee Hun-jai, chairman of the Financial Supervisory Commission (FSC), yesterday.

During a breakfast meeting with members of the Korea Chamber of Commerce and Industry, the FSC chairman said that meeting the targeted ratio of 200 percent by the end of 1999 is designed to help the chaebol survive global competition.

``The chaebol will need to satisfy the targeted debt-to-equity ratio to ensure their survival in the international market. It is a request not from the government but from the market,'' Lee said.

``To borrow capital from overseas financial institutions, one of the prerequisites is to prove sound capital adequacy. Without a reasonable debt ratio, no banks will offer Korean firms credit,'' said the FSC chairman.

His statements came following various reports questioning the feasibility of the 200 percent debt-to-equity ratio required of the chaebol by the end of 1999 as set by the financial authorities.

Though the ratio is seen as an ideal target for improving the financial status of the private sector, a general sentiment is that more time should be offered to the chaebol for a smooth transition into the required level.

During a two-day media seminar in Singapore for Asian journalists, Hubert Neiss, director of the International Monetary Fund (IMF), expressed that the government's targeted debt ratio of below 200 percent for the top five chaebol is a difficult goal to be realized by the end of the year.

In response, a senior government official said earlier that the financial authorities will not direct major creditor banks to impose sanctions on the chaebol that are unable to satisfy the target within the given time frame. …