GOV’T ON LEGOLAND DEFAULT

[Anchor Lead]

The bond market is in the doldrums as interest rates are soaring on concerns that 205 billion won in bonds issued by the Gangwon Jungdo Development Corporation to finance the construction of the Legoland amusement park may not be repaid. This means it'll be harder for businesses to receive loans when they need funding. The government has vowed to deploy all available resources to purchase the bonds.

[Pkg]

A meeting of economic and financial chiefs was convened at a one-day notice, attesting to the urgent situation in the capital market.

[Soundbite] Choo Kyung-ho(Deputy Prime Minister for Economy) : "We agreed the current market situation is quite serious and we must use all available resources if needed."

The turmoil began when the government of Gangwon-do Province announced it would apply for court receivership for an affiliated public agency that participated in the construction of the Legoland amusement park. This triggered anxiety among corporate bond investors that even bonds guaranteed by local governments can also go bankrupt. As rumors spread that even security companies that have been expanding real estate loans so far are on the verge of collapse, the government decided to inject a large sum. This includes 20 trillion won from the bond market stabilization fund, 16 trillion in corporate bonds and commercial paper to be purchased, and 3 trillion won in funding for securities companies. The total sum: 50 trillion won. On Monday financial authorities will start purchasing 1.6 trillion won worth of corporate bonds. The BOK will also discuss additional measures at this week's monetary policy meeting. However, the predominant opinion is that capital market woes have just begun.

[Soundbite] Hwang Sei-woon(Korea Capital Market Institute) : "The key interest rate is likely to be raised through Q1 of 2023. After that, economic recession will become more palpable. The situation is likely to deteriorate further."

Financial authorities reiterated that they will make sure all local governments fulfill their payment guarantee obligations to prevent mishaps like the one in Gangwon-do Province. They also vowed stern measures against those who spread baseless and false rumors.