S.Korea's c.bank moves to avert credit crunch triggered by Legoland default (updated)

Korea Electric Power

27/10/2022 02:59

(Recasts throughout)
    By Cynthia Kim
       SEOUL, Oct 27 (Reuters) - 
    The Bank of Korea said on Thursday it will loosen collateral
policies for local financial institutions applying for loans
from the bank to mitigate the fallout from a debt default by the
South Korean developer of theme park Legoland two hours east of
Seoul.
  
        Legoland Korea developer Gangwon Jungdo Development
Corp. missed payments worth 205 billion won ($144 million) due
on Sept. 29. That shocked financial markets given the debts,
asset-backed commercial paper guaranteed by the local
government, were rated A1 then and were invested by about 10
local brokerages.
  
    The default has led to a sudden freezing of short-term money
markets in Asia's fourth largest economy just as the Bank of
Korea's 250 basis point worth of rate hikes since mid-last year
are battering the country's once-booming property market and
local brokerages that are heavily exposed to real estate project
finances. 
    Policymakers has been announcing liquidity-injecting
measures one after another since Sunday, including doubling of a
corporate bond-buying facility to 16 trillion won.
        On Thursday, the BOK announced the move on collateral
policies to mitigate the tightening of financial conditions in
the short-term money markets.
  
        The bank will also open a temporary repurchase agreement
facility worth about 6 trillion won ($4.24 billion) for local
financial institutions to support the smooth functioning of
financial markets.
    The measures come as the yield on 91-day commercial paper
 KRCP=KQ  surged to 13-year high of 4.54% on Thursday from 1.55%
at the start of the year.
   Caught off-guard by the Legoland default, even corporate bond
sales by AAA rated state-run Korea Electric Power Corp. failed
to get enough bidders on Tuesday.
    "The Legoland issue has really triggered worries about a
credit crunch and more are also worried about financial
conditions at some brokerages and construction firms," said Han
Kwang-yeol, an analyst at NH Investment & Securities.
    "The recovery of this credit market will be a slow one given
that central banks all around the world are still hiking rates
to curb inflation."
    To mitigate the market jitters, Gangwon Province, which is
obligated to repay the loan as state guarantor of GJC's debt,
said on Thursday it will fully pay the entire 205 billion won by
Dec. 15.
    "The decision (to repay the debt) has been coordinated with
the government including the Ministry of Economy and Finance,"
said Jeong Kwang-yeol, deputy governor on economic affairs for
Gangwon Province. 
($1 = 1,422.7300 won)
 (Reporting by Cynthia Kim; Editing by Christian Schmollinger
and Ana Nicolaci da Costa)
 ((Cynthia.Kim@thomsonreuters.com; 822 3704 5655; Reuters
Messaging: cynthia.kim.thomsonreuters.com@reuters.net))