The Bank of Korea (BoK) said it will loosen collateral policies for local financial institutions applying for loans from the bank to mitigate the fallout from a debt default by the South Korean developer of theme park Legoland two hours east of Seoul.
Legoland Korea developer Gangwon Jungdo Development Corp. missed payments worth 205 billion won ($144 million) due on Sept. 29. That shocked financial markets given the debts, asset-backed commercial paper guaranteed by the local government, were rated A1 then and were invested by about 10 local brokerages.
The default has led to a sudden freezing of short-term money markets in Asia’s fourth largest economy just as the Bank of Korea’s 250 basis point worth of rate hikes since mid-last year are battering the country’s once-booming property market and local brokerages that are heavily exposed to real estate project finances.
Policymakers has been announcing liquidity-injecting measures one after another since Sunday, including doubling of a corporate bond-buying facility to 16 trillion won. On Thursday, the BOK announced the move on collateral policies to mitigate the tightening of financial conditions in the short-term money markets. The bank will also open a temporary repurchase agreement facility worth about 6 trillion won ($4.24 billion) for local financial institutions to support the smooth functioning of financial markets.