South Korea’s financial regulators are calling on the country’s petrochemical producers to draw up sweeping self-rescue measures, including specific production cuts and fresh equity injections by controlling shareholders, before seeking any state support.
Korea’s top financial regulator, the Financial Services Commission (FSC), on Thursday convened senior executives from the three policy lenders and the country’s top five commercial banks, urging them to extract commitments from petrochemical companies before approving rescue financing.
The move comes as the government embarks on a pre-emptive restructuring of the petrochemical industry, hit by global overcapacity and eroding ethylene margins.
“Shareholders and affiliates must take responsibility with concrete, credible plans and rapid execution to persuade the market,” FSC Vice Chairman Kwon Dae-young said at the meeting.
He criticized industry complaints over the government’s principle of “self-rescue first, government support later,” likening them to “a drowning man who refuses to let go of his baggage.”
Finance Minister Koo Yoon-cheol (right) presides over a meeting of economy-related ministers on strengthening the petrochemical sector’s competitiveness on Aug. 20, 2025 PLANT-BY-PANT REDUCTION TARGETS
On Wednesday, Korea’s 10 largest petrochemical companies agreed to restructure their operations, including up to 25% cuts to their naphtha-cracking capacity, as the government called for rigorous restructuring to save the bleeding sector from total collapse.
The petrochemical makers agreed to reduce their annual naphtha-cracking capacity by between 2.7 million and 3.7 million metric tons, which means shutting down as much as 25% of the country's annual capacity of 14.7 million tons.
Finance Minister Koo Yoon-cheol said the government will ease regulations and offer financial and taxation support for companies that sincerely make efforts to “rescue themselves.”
But he warned that authorities will not tolerate any "free riders" expecting government aid without making an effort to restructure.
Government officials said on Thursday that the headline target of a 25% voluntary reduction lacked teeth.
Government sources said producers operating at the country’s main hubs in Daesan, Yeosu and Ulsan are now required to submit plant-by-plant reduction targets for ethylene output in coordination with their creditor banks.
Finance Minister Koo Yoon-cheol (center) and executives of Korea's 10 petrochemical firms agree to drastically cut their capacity on Aug. 20, 2025 CONTROLLING SHAREHOLDERS REQUIRED TO INJECT FRESH MONEY
The sector’s total financial exposure is estimated at 32 trillion won ($23 billion), including some 14 trillion won in corporate bonds and commercial papers.
Sources said regulators will press controlling shareholders to inject fresh equity to help deleverage balance sheets and absorb losses.
The restructuring framework will be anchored by a creditor-bank accord, to be signed next month under the auspices of the Korea Federation of Banks.
Companies seeking liquidity support will undergo creditor-led due diligence, and only those with viable restructuring plans backed by shareholder participation will be eligible, according to FSC officials.
Officials stressed that lenders would refrain from immediate loan recalls while firms draw up self-rescue plans, but warned that “vague commitments” would not suffice.
“Without a disciplined approach, we risk encouraging complacency among weaker players,” said a senior policymaker.
A petrochemicals facility in Korea REGULATORY RELIEF FOR BANKS
Banks, meanwhile, have sought regulatory relief to facilitate their participation in the process, noting that debt write-downs or rescheduling could trigger large provisioning charges if loans are reclassified as non-performing.
The FSC indicated that it is open to temporary forbearance measures, similar to those deployed during the clean-up of small business loans and property project finance exposures.
The unusual step of forcing proactive restructuring on those companies reflects mounting anxiety in Korea over the petrochemical industry’s long-term viability in the face of Chinese and Middle Eastern oversupply.
“This is not about rescuing one or two firms. It is about reshaping an entire sector with complicated interdependencies,” said a senior creditor banker.
Write to Jae-Won Park, Hyung-gyo Seo and Hyun-Ju Jang at wonderful@hankyung.com In-Soo Nam edited this article.
