South Korean government and the Bank of Korea will create a 11 trillion won ($9.50 billion) fund to support two state-run banks that are exposed to shipping and shipbuilding firms currently being restructured. The country expects a 20% drop in major shipbuilders’ capacity and 30% drop in their workforce by 2018 versus 2015 after the restructuring process. The two state-run banks to be capitalized are Korea Development Bank (KDB) and the Export-Import Bank of Korea (KEXIM). The Bank of Korea will lend a maximum 10 trillion won for the state-bank fund via a conduit bank, the Industrial Bank of Korea (IBK), and that fund will later purchase contingent convertible bonds (CoCos) from the two state-banks. Contingent convertible bonds are hybrid assets that can be switched by the borrower from bonds into shares if a pre-set trigger is reached. The rest of the capital for the state-bank fund will be provided by loans from Korea Asset Management Corporation (KAMCO), which will also be in charge of setting up the actual fund.
