The financial regulator will keep a close watch on two major South Korean conglomerates with weak balance sheets to avert a sudden fallout from possible liquidity shortages, its officials said Monday.

The Financial Supervisory Service (FSS) plans to have creditor banks of Hanjin Group and Dongbu Group clinch a fresh financial agreement with the two groups, by which Hanjin and Dongbu will be obliged to improve their finances and keep cash flows under control, according to FSS officials.

Hanjin is the ninth-largest conglomerate in South Korea, well known for its flagship affiliate Korean Air Lines Co. and logistics unit Hanjin Shipping Co.

Dongbu started off as a builder that grew into the 17th-biggest group, whose main businesses stretch to electronics, logistics and finance.

Both firms have few liquidity risks at this stage since they have been undergoing a process to revamp their balance sheets upon the existing financial covenant signed with the creditor banks.

But as the short-term economic outlook in the next few years remains uncertain, the FSS decided to beef up corporate oversight in a bid to prevent a spate of possible bankruptcies.

The FSS is considering pressing the firms with a management reshuffle or higher interest rates if they don't comply with the financial accord.

The regulator's move came as South Korea has seen some leading enterprises go under after suffering from liquidity shortages, including shipbuilding giant STX Group in April and another conglomerate, the Tong Yang Group, in September.

Hanjin and Dongbu have been making fierce moves to secure more ample funds against liquidity risks through selling assets and seeking help from affiliates. Hanjin Shipping recently got financial support worth 150 billion won (US$140.6 million) from Korean Air Lines and is also trying to raise more money via selling perpetual bonds.

Also Monday, Kim Young-min, president and CEO of Hanjin Shipping, resigned over his failure to improve his company's financial health. Kim announced his decision in a meeting with key company officials earlier in the day, according to Hanjin Shipping.

Hanjin Shipping laden with a debt ratio of 835 percent recorded an operating loss of 55.7 billion won (US$52 million) in the second quarter. Meanwhile, direct financing in South Korea has lately been in a rough patch for firms, as investors shun buying bonds following the series of corporate failures.

Companies raised a total of 58.9 trillion won via bond sales in the year to October, down 9.8 percent from a year earlier. Large firms saw their bond issuances dip 28.1 percent to 31.7 trillion won, with that of smaller companies plunging 62.2 percent to 20 billion won over the cited period, according to FSS data. (Yonhap news)