SEOUL, June 25 (Yonhap) -- South Korea's move to accelerate a corporate overhaul is widely seen as the government's strong will to keep possible failures of nonviable companies from crimping the momentum of the economy's recovery, experts say.
Local creditor banks announced Friday a list of ailing companies which will undergo creditor-initiated corporate restructuring moves. They plan to either end financial supports to or reschedule debts at a total of 65 companies, including 16 builders.
Despite the overall economic rebound, the construction sector has yet to recover as the recent economic downturn and a housing market slump have pushed up the number of unsold homes, making smaller construction firms feel pinched more.
Some smaller builders have heavily borrowed mostly from savings banks in a bid to finance excessive expansion, riding on the 2005-2006 housing market boom. South Korea is set to pour massive money into savings banks to buy their distressed debts, which stemmed from sour property-linked loans.
Experts said South Korea's move to accelerate the corporate restructuring came because a delay could hurt the health of the local economy, which is recovering at a faster-than-expected pace.
Last year, banks pushed for revamping nonviable companies as a possible bankruptcy chain reaction could undermine the soundness of the banking sector, dealing a harsh blow to the slumping economy, hit by the global financial meltdown.
But now that the South Korean economy is emerging from the economic downturn, financially troubled companies are dragging their feet in restructuring themselves, on the belief that they could survive with the passage of time.
Local banks have also been lukewarm about weeding out ailing firms because doing so jacks up bad debt, thereby hurting their financial health.
South Korean President Lee Myung-bak also expressed the need to aggressively push for the revamp in a bid to enhance the fundamentals of the economy.
"Some builders should be held responsible morally for burdening many people by recklessly plunging into the housing market to cash in on the boom of the construction business," Lee said.
Experts said the move would help improve the health of the local construction sector over the long term although affected companies will undergo painful structuring in the short term.
"The housing construction market is getting saturated. Korean builders need to diversify their business portfolios," said Kim Sun-deok, head of the Construction Industry Strategy Research.
Others called for the need to push for more rigorous revamping processes as the bank-led restructuring has limitations.
Kim Sang-jo, a professor at Seoul's Hansung University, said as banks are inclined to drag their feet in pushing forward the overhaul on fears of rising bad debt, there is a need to review the efficiency of the bank-initiated restructuring.
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