South Korea is expanding its support for its beleaguered property sector, lifting liquidity for project finance asset-backed commercial paper to a total of 2.8 trillion won ($2.1 billion).
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Support for securities backed by brokerages will be increased to 1.8 trillion won from 450 billion won and the state-run Korea Development Bank-led program will allocate 1 trillion won for those backed by construction companies, the Financial Services Commission said on Friday.
The news is the latest in a series of measures deployed by officials in Korea over the past fortnight to combat a credit crunch after the default of a developer pushed short-term debt yields to levels not seen since the global financial crisis.
Yet despite an almost daily announcement of new steps – including a 50 trillion won aid package – yields on commercial paper have continued to climb. Yields on 3-month commercial paper increased 4 basis points on Friday to 5.13%.
“Compared to the corporate bond market, it was evaluated that the difficulties in the short-term capital market are still ongoing,” the FSC, the country’s financial regulator, said in a statement. Additional steps were deployed because asset-backed securities for project financing and commercial paper “are the weakest link in the short-term money market.”
Adding to credit market strains, a South Korean insurer prompted a selloff in perpetual bonds across Asia with the decision to forgo early repayment. It reversed course this week.
The heads of 20 Korean lenders including Hana Bank, Kookmin Bank, Nonghyup Bank, Shinhan Bank, and Woori Bank have said they will purchase commercial paper and asset-backed CP and cooperate to maintain credit lines for non-banking financial companies.