[THE INVESTOR] The Korean business community is abuzz with talk of corporate restructuring, as a special law took effect last week to help companies suffering from an oversupply in their industrial sectors reorganize their businesses.

The Special Act on Corporate Revitalization, commonly called the “one-shot act,” is designed to encourage companies to make voluntary and pre-emptive restructuring efforts before their businesses go from bad to worse.

It provides a wide range of benefits to companies whose restructuring plans have been approved. For instance, if the approved companies push for mergers and spin-offs, they would be exempted from the relevant regulations in the Commercial Act and other laws.

The government has come up with a support package to implement the law, including financial support amounting to 8.7 trillion won ($7.86 billion).

As the law offers attractive incentives for corporate restructuring, many Korean companies are showing great interest in taking advantage of it.

On Tuesday, the first day the government accepted corporate restructuring plans from companies, four companies submitted applications, including Hanwha Chemical and UNID.

Hanwha Chemical is Korea’s largest maker of caustic soda. But as the chemical is in oversupply, the company intends to sell its excess capacity to UNID, the world’s No. 1 producer of caustic potash. UNID plans to convert Hanwha’s plant into a production line for caustic potash.

If the two companies’ plans are approved, Hanwha will be allowed to defer for four years the payment of taxes on the capital gains it would earn from the sale of its plant. UNID is also expected to get benefits regarding the relocation of Hanwha’s plant.

Many companies are likely to push for corporate restructuring under the special law as oversupply is a serious problem in a number of industries.

To allow more companies to benefit from the law, the government needs to address its problems.

To apply for support under the law, companies are required to demonstrate that the industrial sectors they engage in are suffering from an oversupply. But it is not easy to show that an industry is facing a supply glut.

Companies are supposed to use criteria such as the ratio of operating profit to turnover, plant operation rate, inventory-sales ratio and the prospects for demand recovery.

But it is not easy for companies to obtain the necessary industry data. The difficulty is greater for small and medium-sized companies.

Furthermore, some of the criteria, such as plant operation rate and inventory-sales ratio, are not applicable to some companies in the service industry.

The government is advised to relax the criteria, as these days it is difficult to find an industrial sector where voluntary and pre-emptive restructuring efforts are not needed.

The government also needs to provide consulting services to help companies prepare application documents.

(theinvestor@heraldcorp.com)