S. Korea's corporate restructuring to cost 31 tln won: IMF

The International Monetary Fund (IMF) put the estimated cost of South Korea's ongoing corporate restructuring drive at 31 trillion won (US$27 billion), saying it will be offset by various benefits in a decade, according to a recent report, sources from Yonhap.

A set of file photos on South Korea's shipyards (Yonhap)

It used loss given default (LGD) data for corporate debts and employment impact assumptions under a scenario that corporate restructuring in Asia's fourth-largest economy will proceed in the most effective manner.

"Our method gives that cost at about KRW 31 trillion in the adjusted baseline," it said in the report on the benefits and costs of the county's corporate restructuring.

South Korea is currently engaged in full-fledged restructure of its shipbuilding and shipping industries amid mounting debts attributable to fierce industrywide competition.

"Benchmark results for Korea suggest 5.5-7.5 percent of GDP creditor losses and a 0.4-0.9 percent of the labor force employment impact from the debt restructuring," the IMF said.

The benchmark scenario covered actual 2014 earnings and a 10 percent decline in corporate earnings as a confidence range.

But the IMF predicted that it will lead to such mid- to long-term benefits as higher corporate investment and hiring under any presumed scenario.

"The accumulated benefits of corporate restructuring will offset the one-time costs in about 10 years," it said. "The key qualitative insight is that corporate debt restructurings 'pay off' in the medium-term."

   It added the employment impact of the restructuring in shipbuilding only will likely be around 10,000 people.

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