US banks to offer plan on South Korean debt

A group of the largest US banks is preparing a long-term plan to restructure South Korea's debt which it hopes to present to the Seoul government at the beginning of next week. The group is confident that the current roll-over of 30-day debt can be completed, and that it can persuade Korea to issue longer-term debt at the current high market rates of interest.

The moves come as South Korea braces for a wave of bankruptcies as early as tomorrow, when the Seoul stock market reopens at the end of the New Year holiday. Companies are struggling to settle year-end accounts amid a severe credit crunch.

More than 100 Korean companies were estimated to be threatened by possible bankruptcy if they were unable to meet more than £1 billion in payments on bond issues due by the year-end. The companies had problems raising capital before the holiday as investors demanded high yields on new bond issues and banks reduced lending to meet capital adequacy levels demanded by the IMF.

"The truth is that almost no group is safe unless they restructure," said Mr Richard Wallace, equities head for Dresdner Kleinwort Benson in Seoul. "Most companies are under threat if interest rates stay at 30 per cent, which is nearly five times the inflation rate."

Despite the alarm in Korea, US banks seemed confident that the country's immediate liquidity problems had been addressed, although this had proved to be a "huge job".