Companies benefiting from the plan will be required to pay down their debt before spending the funds on operations.

As it draws up a series of measures to stem the crises in the financial sector and the real economy, the government has been accused of passing the burden of risk and bad debt, which critics say were incurred as the result of the greed of companies and financial firms, on to taxpayers.

Following the announcement on October 19 that it will guarantee foreign debt held by banks for the next three years to stabilize the financial market, the government said on October 20 that it is considering buying land from private companies to ease the credit crunch and stabilize the real estate market.

On October 20, a senior official at the Ministry of Land, Transport and Maritime Affairs said, “Korea Land Corporation is considering a plan to buy land not used for business from companies, not builders, with a fund of 6 trillion won (US$4.5 billion).

Ministries, including the Ministry of Strategy and Finance, have already agreed to the plan and it will be finalized soon at a meeting with government and ruling party officials. The plan will be announced on around October 22 as part of (the government’s) ‘measures to stabilize the real economy.’”

“The plan would help cash-strapped companies with a large portion of their assets and banks that lend money to such firms,” the official said. “To prevent a moral hazard, the government will require companies to use the proceeds from the land sale to repay their bank loans first.”

If the plan is implemented, it would be the first time in 10 years the government has offered to buy private land since the Asian financial crisis of the late 1990s, when the government bought land not used for business from companies for some 2.6 trillion won to help them gain liquidity.

Under the proposed plan, the state-run Korea Land Corp. would buy the land at prices of 20 percent to 30 percent below market value. To raise funds for the land purchase, it is believed that Korea Land Corp. will sell bonds with a yield of 5.8 percent a year. This is similar to the plan carried out during the Asian financial crisis.

At that time, Korea Land Corp. bought 12.72-million-square-meters of land from 809 companies, which were given the option to buy the lands back after three years. Regardless of the size of the company, companies that offered to sell their land to Korea Land Corp. at cheaper prices were able to sell their land quickly. Since then, Korea Land Corp. has sold most of the land it purchased, except for 200,000-square-meters of land worth 84.5 billion won.

To sell their land, companies will engage in negotiations with the state-run company. If a deal is reached, Korea Land Corp. will purchase the land from the bank holding the mortgage. Companies and Korea Land Corp. are likely to face a tug-of-war over prices, but companies that are in desperate need of funds will have little option but to sell their land at lower prices.

“As land prices surged after the (Asian) financial crisis, 6 trillion won will not allow us to buy as much land as we did then,” another official at the Ministry of Land, Transport and Maritime Affairs said.

In certain circles, the government was seen as making the purchase in an effort to keep companies afloat and shield banks from the impact of unpaid debt. However, many critics point out that such a measure will encourage a moral hazard among the companies that benefit from the plan.

Perhaps because it could sense the criticism, the government added the stipulation requiring that companies use the land sale proceeds to first repay their debt and spend the remainder on company operations.

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