Report: Korea Development Bank to launch restructuring fund

The Korea Development Bank is reportedly close to setting up a W1trn corporate restructuring fund for ailing Korean companies. The bank is expected to enlist the help of private equity funds to raise capital.

State-owned Korea Development Bank (KDB) is expected to raise W1 trillion ($757 million; €575 million) for a corporate restructuring fund, according to a report in Korea’s JoongAng Daily.

The bank will launch the fund later this month, government officials and other people familiar with the matter told the paper. “[The fund] is aimed at giving ailing small and medium-sized companies struggling from financial woes in the recession a chance to revive,” an unnamed KDB official said.

KDB will initially contribute W100 billion to the fund and private equity funds will be asked to join in and raise the remaining amount, the paper noted.

The fund will invest capital in companies in exchange for controlling stakes in them. It will hold stakes in the companies it acquires for no more than five years and will ideally look to sell them back to previous owners or members of the existing management, according to a lender’s blueprint.

“Once the companies successfully normalize their management, we can make a profit by selling back the shares in the firms,” the KDB official told the paper.

Provided the bank manages to successfully raise W1 trillion, it will be able to restructure 50 local companies. Initial investments will not be made in companies backed by local conglomerates.

Established in 1954, the Korea Development Bank often acquires stakes in local companies with liquidity problems in an attempt to restructure them and sell them. The bank is also a limited partner in South Korea-focused funds.

The Korean government is taking active measures to promote investments and stimulate its economy following a domestic slowdown resulting from the global financial crisis. In March, the South Korean Ministry of Knowledge Economy committed $20 million each to the STIC Investments’ second mid-market fund, US-based Burrill & Co, which is focused on biotech and life science, and C Change Investments, which is raising a green energy fund in partnership with Korea Investment & Securities.

In the same month, the Korean government backed an agreement between Macquarie Group and Woori Bank to raise $1 billion to invest in South Korea’s infrastructure and renewable energy sectors.

KDB did not respond to a request for comment.