Korea will set up a new trading system for bonds issued by smaller firms in May next year in a bid to help them raise funds, a trade association said Monday.

The envisioned electronic over-the-counter trading system will deal with debts sold by unlisted local small and medium enterprises with total assets below 500 billion won ($436 million), according to the Korea Financial Investment Association.

Their debts will only be sold to “qualified institutional buyers,” or those deemed capable of sufficient risk management by financial regulators, such as the central bank and the National Pension Service.

The market will also cover debts sold by foreign public enterprises, their convertible bonds or bonds with warrants as well as Arirang bonds, or won-denominated debts issued in South Korea by a non-Korean company.

The move comes as South Korean SMEs find it hard to raise money through debt sales mainly due to low demand and strict disclosure requirements.

KOFIA said it plans to draw up related rules by March 2012, with the trading system available on its existing online board “Free Bond.” 

(Yonhap News)