Special purpose vehicle to buy bonds, commercial papers from low credit companies
Updated: 2020-05-20 17:29:26 KST
South Korean financial authorities plan to lend money through a special purpose vehicle or SPV to low credit companies suffering from a cash crunch amid the COVID-19 outbreak.
At a meeting on Wednesday, the finance ministry and the Bank of Korea said they will set up the SPV to buy up corporate bonds and commercial papers worth almost 8.2 billion U.S. dollars in total, including some subprime loans.
The SPV will be set up under the Korea Development Bank to temporarily run the lending program for six months.
The central bank will contribute over 6-billion dollars, while the government and the KDB will inject around 1-billion dollars each.
It's unusual for the central bank to lend money to low credit companies through an institution.
"Corporate bonds and commercial papers issued by companies with low credit ratings are still marginalized when it comes to liquidity supply, and this may increase market risk."
The SPV will buy bonds rated as low as BB, but it will only buy these from companies that were previously viable for investment but have been recently downgraded because of the COVID-19 impact.
The government will evenly distribute the SPV, lending a maximum of 3 percent of the SPV to any single company or group of businesses.
The authorities will monitor the COVID-19 situation and decide in the future whether to expand the lending amount.
Yoon Jung-min, Arirang News.