Korea Development Bank asked the government for a government debt guarantee of up to 18 trillion won to expand the advanced strategic industry fund that invests in artificial intelligence (AI), semiconductors and more. The Financial Services Commission acknowledged the need for a government debt guarantee and the feasibility of the repayment plan and plans to begin the approval process soon.
According to the financial sector on the 14th, the Financial Services Commission recently held an ad hoc commission meeting and reviewed the agenda for a government debt guarantee requested by Korea Development Bank. Korea Development Bank said issuance of up to 18 trillion won in advanced strategic industry fund bonds (fund bonds) is expected next year and applied for a government debt guarantee for them. That is 3 trillion won more than the 15 trillion won limit on Korea Development Bank government debt guarantees set by the government this year.
A government debt guarantee is a system in which the state guarantees principal and interest repayment on bonds issued by government agencies and the like. Because ratings are assigned on par with Government Bonds without a separate credit assessment, the issuing institution can raise large amounts of capital at low interest rates.
The advanced strategic industry fund is a large-scale policy finance program designed to strengthen competitiveness in advanced industries such as AI, semiconductors, biotech and the space industry. The government last year created the advanced strategic industry fund at Korea Development Bank and, matching it, launched the 150 trillion won Public Growth Fund.
The Public Growth Fund was initially planned to operate at 30 trillion won annually, 150 trillion won over five years, but the government decided to expand it to 40 trillion won annually, 200 trillion won over five years, starting next year. Direct equity investment will also increase from 3 trillion won a year to more than 5 trillion won. As the Public Growth Fund grows, Korea Development Bank requested a higher government debt guarantee cap in preparation for increased fund bond issuance.
Through the meeting, the Financial Services Commission was said to have reached the view that Korea Development Bank's application for a government debt guarantee is reasonable. Once the Financial Services Commission acknowledges the feasibility, it must apply to the Ministry of Finance and Economy for a government debt guarantee. The ministry then submits a government debt guarantee consent bill to the National Assembly after approval by the Cabinet meeting. The state needs prior consent from the National Assembly to assume guaranteed obligations.