(a) Is it more usual for the financing needs of these types of corporates to be satisfied out of capital (equity) raisings; retained earnings; or external borrowings?

For a chusik hoesa, it is more common to meet its financing needs through external borrowings.

(b) What are the main sources for borrowing for these types of corporates?

On average, external borrowings from non-banking institutions were higher than borrowings from banking institutions.

(c) Is there significant competition among lenders and significant choice of sources for borrowing available to these types of corporates?

Whether there is competition among the lenders depends on the creditworthiness and other factors relating to a particular company. Companies borrow funds from various financial and non-financial institutions, both Korean and foreign.

(d)What is the present average rate of interest payable in respect of unsecured and secured debt?

Due to financial difficulties in Korea, the interest rate is comparatively volatile. The interest rate also differs depending on the creditworthiness of a particular company. As a point of reference, the interest rate for corporate bonds is approximately 9.5%.

(e) Is finance generally available for long, medium and short-term borrowings?

Short, medium and long term borrowings are generally available. Due to financial difficulties, however, the companies are putting greater emphasis on long term borrowing rather than short term.

(a) What part does the central bank of this economy play in the regulation of the banking and finance sector? Would it intervene or seek to influence the outcome or course of events if, for example a large corporate with debt exposure to a number of banks was in financial difficulty?

The Bank of Korea issues currency and acts as the banks' bank. It also implements monetary policies and administers foreign currency reserves. The Bank of Korea also supervises banks through Bank Supervisory Board, and in such capacity, may be able to exert indirect control over corporations with large debt exposure to banks by way of capital adequacy requirement, discount rate or other means.

(b) Is there any tradition in this economy for a 'main' or 'house' or 'lead' bank to become involved as a chief negotiator or leader in the case of the financial difficulty or insolvency of a large corporate borrower with debt exposure to a number of banks?

It is generally the case that the "lead" bank will act as the leader among the in case of insolvency of a large corporate borrower. The "lead" banks will gather information, seek to improve the financial condition of the financially distressed company and act as the negotiator.

(a) Is assessment or analysis of lending risk widely practised in this economy?

Financial institutions will generally perform a credit risk analysis of the borrower.

(b) If so, does the average lending bank make adequate assessment of risk analysis when contemplating lending to a corporate borrower?

Although the average lending bank make assessment of risk analysis, the general consensus is that factors other than risk analysis are often involved in making the decision to lend money.

(c) Would it be usual or common for a lending bank to regularly monitor the financial performance of a corporate borrower?

It is common for a lending bank to regularly monitor the financial performance of a corporate borrower. The actual frequency and scope of monitoring activity will depend on the lender and the financial stability of the borrower.

(d) Would it be usual or common for a lending bank to be regularly supplied with copies of the financial statements of a corporate borrower?

It is common for a lender to request financial statements during the tenor of the loan.

(a) Is there a significant source of foreign bank lending in this economy?

Foreign bank lending is an important source of borrowings in Korea, especially for large corporate borrowers.

(b) If so, is it usual for this funding to be provided by the foreign bank/s alone or in combination with funding from local or domestic bank/s?

Although there are lendings by foreign banks alone, it is more common to have a syndicated loan with Korean financial institutions participating in the loan.

(c) Are you able to detect whether there are significant differences in approach and funding terms when a foreign bank is involved in the lending (as compared with a purely local or domestic funding)?

(d) If so, what are the main differences?

Because foreign banks will be lending mostly foreign currency rather than Korean Won, there may be differences in the approach and funding terms. The interest rate is also different compared to Korean Won-denominated loans. Generally, for foreign currency loans, the loan documentation used is similar to those used in international financial markets, which is often different with an ordinary loan contract used for domestic borrowings in Korean Won. Thus, provisions that are often found in international loan contracts may be absent in Korean loan documents and vice versa.

(a) Is 'related' or 'exclusive' lending (ie where a corporate borrower and a bank have an established commercial relationship such that only that lender is looked to as the source of borrowing by the corporate borrower) common in this economy?

A company may deal with 2 or 3 banks. Large companies may deal with 10 or more banks. If a company deals with a number of banks, it will often have a "lead" bank.

(b) If no, what effect does this have if the corporate borrower is in financial difficulty or is insolvent?

n/a

(a) Is 'syndicated' lending (ie where a group of banks or financial institutions join together to provide funding for a corporate borrower) common in this economy?

Although there are syndicated financing for project finance type of loans, in general syndicated lending for Won-denominated loans are not common. However, for foreign currency-denominated lending, syndication is common.

(b) If so:

(i) does a lead bank perform the role of 'agent' on behalf of all the lenders; and/or

Although the lead bank often acts as the agent in syndicated lending, this is not always the case.

(ii) is the concept of a 'trustee' (or similar) for a syndicate of banks (ie where the 'trustee' holds any security for the syndicated funding on trust for the syndicate of banks) known and/or practised in this economy?

Same as in (i).

(iii) if the corporate borrower is in financial difficulty or is insolvent what function does the 'agent' or 'trustee' perform?

The agent takes actions stated in the relevant loan documentation. Generally, this would be liaising between corporate borrower and the lenders, administrating the loan, declaring default and taking other actions as the lenders may direct in accordance with the loan documents.

(a) Is the concept known as 'debt subordination' (ie, a contractual arrangement between lenders in which there are 'layers' of 'senior' and 'junior' debt and which has the effect of postponing repayment of the 'junior' debt until payment has been made of the 'senior' debt) recognised and practised in this economy?

Yes, the concept of "subordinated debt" exists in Korea.

(b) If so, is debt subordination recognised and/or enforced under the insolvency regime of this economy?

Yes, debt subordination will be enforced as set forth in the insolvency laws of Korea. Namely, there may be restrictions on repayment of subordinated debt in the event of insolvency.

(a) Is it permissible for banks to own equity in a corporate borrower?

Unless otherwise permitted by Financial Supervisory Commission, banks are not allowed to own in excess of 15% of issued shares of another company.

(b) If so, is it permissible for a bank to convert debt to equity?

principle, it is permissible for a bank to convert debt into equity. As noted above, however, banks may not own more than 15% of issued shares of a company without Financial Supervisory Commission's permission.

(c) Are there instances where this has in fact occurred, particularly in the context of either:

(i) in the context of an 'informal work out' as a result of the insolvency or approaching insolvency of a corporate borrower; or

Yes, there are instances where debt has been converted to equity in the context of a "work out". Recently, Gopyung, Kohap and Kabul (which all faced financial difficulties) agreed with the creditors group to convert debt to equity as part of its respective overall restructuring plan.

(ii) in the context of a formal insolvency administration of a corporate borrower?

No, we are not aware of instances where debt has been actually converted to equity in the context of formal insolvency proceeding.

(d) In such a case, is it usual for the bank to be then represented on the management or board of the corporate borrower?

It has become possible for the bank to become the controlling shareholder and it is possible that the bank may be represented on the management or the board of such companies.

(a) Is there a market for 'debt trading' (ie, where a bank might sell or trade the debt owed to it by a corporate borrower) in this economy?

There is a market for commercial paper and corporate bonds and debentures in Korea.

(b) If so, is debt trading common in this economy, particularly where the corporate borrower is insolvent or near insolvent?

f a corporate borrower is insolvent or near insolvent, it is unlikely that a market for trading of debt securities issued by such company would be active.

(a) Is the concept of a third party 'guarantee' (as distinct from a security over property) to support corporate borrowing known and practised in this economy?

Third party guarantee is known and widely practiced in Korea.

(b) Is there a law which regulates the power to take or give a guarantee?

Other than limitations placed on guarantees by the parent company to its subsidiaries in connection with off-shore borrowing by such subsidiaries, Korean antitrust laws also restrict companies belonging to the same "large enterprise group" to cross-guarantee among each other.

(c) Is it common or usual for corporate borrowing to be supported by guarantee/s?

It is common and usual for corporate borrowing to be supported by guarantees.

(d) If so, are these guarantees usually taken from owners/directors of the corporate borrower; from other corporates associated with the corporate borrower (eg subsidiaries or holding company); or from unrelated third parties?

In the past, it was common for owner/directors to guarantee the loan. However, it is expected that beginning 1999, banks will not require guarantees from hired directors. As for third party guarantees, only certain types of guarantees would be allowed. And finally, for guarantees by affiliates/subsidiaries, guarantees by these companies are subject to restrictions described above if they are within the same "large enterprise group".

(e) Is there a law which regulates the enforcement of guarantees?

Guarantees can be enforced in accordance with Civil Procedure Act.

(f) Is it easy or difficult in practice to enforce guarantee obligations?

There are various factors which determine whether a particular guarantee may be enforced with relative ease or not. Filing of a legal proceeding for enforcement of guarantee is a common legal action.

(g) Is it usual to require that a guarantor should give security over the property of the guarantor as an additional comfort to the lender?

It is not unusual for a bank to require security over property as additional comfort.

(h) Does the insolvency of a corporate borrower have any effect on the enforcement of a guarantee?

Insolvency of the obligor does not extinguish the guarantee and may be enforced.