South Korea

Korea’s national debt has increased at a rapid pace, spawning fears that the country could face a debt crisis akin to the one Europe has gone through in the wake of the global financial crisis, The Korea Times reported. What is of greater concern is that the pace of the debt growth is expected to gain momentum as the government must eventually spend more and more due to the rapidly aging population and possible reunification of the two Koreas. With snowballing debt, the ability of the Lee Myung-bak administration to manage the debt is being put into question.

South Korea is expected to start selling a $6 billion majority stake in the country's largest financial company, Woori Finance Holdings, in a move that could create a Korean bank with the heft to compete on the global stage, Dow Jones Daily Bankruptcy Review reported. A successful sale of Woori, which was cobbled together in 2001 in the wake of the Asian financial crisis as a holding company for several troubled financial firms, would be a significant step for the government of President Lee Myung-bak, which wants to privatize more of an economy that retains significant state ownership.

Credit card firms have seen their loan services gaining popularity among users thanks to less stringent processes, The Korea Times reported. However, the easier-to-use system may produce bad loans both to the detriment of users and the card firms. According to the Financial Supervisory Service (FSS), the amount of lending by credit card companies reached 14.1 trillion won as of the end of August, up 23.7 percent from the end of last year, surpassing cash advance services by banks at 12.5 trillion won, which saw a rise of 3.3 percent during the cited period.

More than one third of listed companies earn less than the interest they have to pay on outstanding debts, a state researcher claimed Thursday, The Korea Times reported. Lee Ji-eon, a researcher at the Korea Institute of Finance, claimed that 561 listed firms ― 36 percent of all the listed companies ― marked an interest coverage ratio below 100 percent in 2008 ― skyrocketing from 24 percent in 2004. An interest coverage ratio below 100 percent suggests that the company’s profit isn’t enough to meet interest payment obligations.

The gap between rent and house prices has narrowed to the lowest margin in nearly five years, according to an industry report Friday, which indicates the latest symptom of a freefalling property market, The Korea Times reported. According to Real Estate 114, a housing market research firm, the average ``jeonse’’ prices in Seoul are now measuring up to 39.77 percent of purchase prices as of September, the highest level since 41 percent in the fourth quarter of 2005.

Creditors of Hyundai Engineering & Construction Co. Friday launched the sale of their 34.88% stake in the construction firm, in a deal that could fetch them $3 billion and potentially set the stage for a fight between Hyundai Engineering's former sister companies, The Wall Street Journal reported. The creditors, in a public announcement published in a local newspaper, said the deadline for letters of interest in the stake will be on Oct. 1. The deadline for the formal bids is Nov. 12, and they seek to name a preferred bidder in December.

South Korea's National Pension Service, the world's fifth-largest pension fund, has committed to invest $300 million in troubled real estate through Townsend Group, the latest sign that foreign investors increasingly are venturing into the down-on-its-luck U.S. property market, Dow Jones Daily Bankruptcy Review reported. The pension fund has committed to invest the money in a separately managed account with Cleveland-based Townsend. It primarily will focus on snapping up stakes in distressed private-equity real-estate funds and recapitalizing these funds.

The higher requirements for the capital base of banks under the so-called Basel III proposition will not affect Korean banks, a government official in charge of the issue said Wednesday, The Korea Times reported. To the envy of many European and American institutions, Korean banks need not shrink their assets or raise more capital, because they already meet those strict capital-to-asset standards, said Kim Yong-beom, director general of Seoul’s G20 committee.

Korean banks are facing a bumpy road ahead in their move to fix their balance sheets already spoiled by massive defaults in project financing, with a growing number of loans to small- and medium-sized enterprises (SMEs) becoming insolvent, The Korea Times reported. What is of more concern is that banks will have to pile up more loss reserves for loans to SMEs as drastic restructuring slated for October will drive many debt-loaded firms into bankruptcy.

South Korea will ease mortgage lending rules and extend tax breaks to encourage buyers back to the property market after home sales slumped to the lowest level in almost a year and a half, Bloomberg reported. Banks will be allowed to ease restrictions on mortgage loans for first-home buyers and owners of one residence until the end of March, the government said in an e-mailed statement yesterday. The waiver for taxes on home sales will be extended by two years until the end of 2012, the government said.