South Korean Government to Overhaul Its Corporate Financial System

Mar 22, 2019

South Korean Government is going to completely overhaul its corporate financial system so that companies that do not have real estate mortgage can still receive funds if they have potentials and technical skills. It is going to provide $88.5 billion (100 trillion KRW) loan to innovative small and medium companies for the next 3 years and drastically increase size of venture capital to $13.3 billion (15 trillion KRW). Its goal is to list 80 companies related to The Fourth Industrial Revolution on KOSDAQ and its plan is to innovate its financial system first to support innovative growth of companies during ‘second venture boom’.
“Financial barrier for startup companies that are filled with dreams, ideas, and confidence is still too high.” said President Moon Jae-in during ‘Innovative Financial Vision Proclamation Ceremony’ that was held in the morning of the 21st at Industrial Bank of Korea’s main branch. “South Korean Government will get out of past financial customs and push for ‘innovative finance’ that will lead innovation of future technologies.”
At this ceremony, President Moon stated that South Korean Government will completely overhaul ‘bank loan system’ and supply $88.5 billion loan to innovative small and medium companies for the next 3 years.
Key to innovative finance is to make finance more accessible to all types of companies. Current financial customs are illogical and have many obstacles for startup companies compared to major corporations with plenty of securities. President Moon called this ‘financial polarization’.
South Korean Government is going to introduce integrated security system that evaluates various assets such as IP (Intellectual Property) and technical skill and makes loans more accessible to companies. It is going to establish an infrastructure that evaluates future potentials such as tangible and intangible assets and technical skills and base corporate loans on technology financing. $79.7 billion (90 trillion KRW) out of $88.5 billion will be used on technology financing.

President Moon Jae-in had conversations with representatives from South Korean Government and financial institutions after the ceremony. <President Moon Jae-in had conversations with representatives from South Korean Government and financial institutions after the ceremony.>

“Because global businesses such as Amazon, Facebook, and Google evaluate companies on their technical skills and potentials, values of companies are more based on evaluations by markets rather than their assets.” said President Moon. “We also need to evaluate potentials of companies based on their ideas and technical skills.”
South Korean Government is going to supply large-scale venture capital through capital market because it believes that capital needs for innovative growth will be insufficient just through corporate loans. It is going to scale up funding for unicorn companies by drastically increasing limit for investment per company from $88.5 million (100 billion KRW) to $443 million (500 billion KRW).
Political fund will be focused on reorganizing traditional manufacturing industry and innovating service industry. It is going to invest up to $10.6 billion (12 trillion KRW) for small and medium companies within major industries such as automotive parts and others for the next 3 years and $53.1 billion (60 trillion KRW) for tourism, healthcare, contents, and distribution for the next 5 years. Its goal is to create jobs for 160,000 people through these investments.
Some are concerned about a replay of ‘venture failure’ that occurred in early 2000s as South Korean Government seems more concerned about accessibility of loans rather than actually looking for companies that are innovative. If South Korean Government does not secure a fair and objective evaluation system, there can be ‘technical venture companies’ in name only. Some suggest that South Korean Government needs to establish industrial policies that are customized for The Fourth Industrial Revolution to promote outstanding technical companies.
“We expect that we will be able to raise more funds for startup companies with technical skills.” said President Moon. “We are going to put in much effort such as establishing ‘private and public joint task force’ by South Korean Government and financial institutions so that innovation finance can maintain its power.”
Staff Reporter Ryu, Geunil | ryuryu@etnews.com & Staff Reporter Sung, Hyunhee | sunghh@etnews.com

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