2022 Korean Economy Overview

The Korean economy experienced a strong recovery from the COVID pandemic in the first half of 2022, largely due to a sharp rise in consumer spending and exports. However, domestic, international and geopolitical factors have created downward pressure on the economy through the second half of the year, tempering optimism of a quick and sustained recovery. Although consumer spending increased following the government’s easing of COVID-related restrictions and fiscal stimulus, a broader recovery remains uncertain due to a decline in real purchasing power and an increase in borrowing costs.  

There has also been a marked decline in investments due to the overall slowdown of the global economy, higher costs of capital, an increase in the cost of importing capital goods and servicing foreign debt. Although the first half of 2022 recorded the highest-ever exports due to strong global demand for major export products such as semiconductors, this also coincided with the largest trade deficit since 1996, largely due to inflation in energy and raw material costs.

In the short term, growth of the Korean economy is expected to weaken, with economic recovery remaining hampered by external risk factors such as energy/raw material shortages caused by the war in Ukraine, a general economic slowdown due to major global economies tightening their fiscal policies, and persistent supply chain disruptions. The continued rise in the KRW-USD exchange rate is also increasing domestic inflationary pressure, while rising interest rates are discouraging consumer spending and corporate investments. These headwinds are creating challenges for both the public and private sectors, and we expect to see continued restructuring activities as difficult decisions are undertaken.

Key Industries for Restructuring

Thus far in 2022, with increasing uncertainty due to the factors mentioned above, there has been a high volume of restructuring activities in Korea, especially in the automotive, chemicals, energy, finance and TMT industries. Technology companies, early-stage companies, venture capital firms, and platform service providers have also been under stress due to depressed market conditions and difficulties in securing funding, leading to layoffs, sales of business divisions, bankruptcy and insolvency filings, and a myriad of other restructuring activities.

Throughout the year, we have represented and provided advice to clients across all of the industries above, assisting with matters such as special-situation M&A transactions, inter-company business transfers, spin-offs of business divisions, share transfers, corporate reorganizations and liquidations.

2023 Restructuring Overview

We believe the adverse economic and geopolitical conditions will likely continue through 2023, and we expect to see an increase in restructuring activities in 2023. We view the key themes for 2023 to be as follows:
 

• Increase in Restructuring Activities by Small and Medium-sized Enterprises
  The Korean government actively intervened with financial support for struggling SMEs in 2022. While it is uncertain whether such support would continue in 2023, in the event such financial support is discontinued or decreased, we may expect greater restructuring activities among SMEs, especially for offline retail SMEs.
   

• Restructuring of Supply Chains
  With supply disruptions and shortages showing slow improvement, the need to restructure supply chains (e.g., facility re-sizing, relocation, procuring additional suppliers, providing support to suppliers, revisiting supply terms) may result in increased restructuring activities.  The foregoing is especially likely to be the case with respect to companies in the oil & gas, chemicals and steel industries.
   

• Continued Restructuring Activities in the Technology and Automobile Industries
  Technology companies at all stages of their life cycles, including platform service providers, are expected to face difficulties as, among other factors, investors look to other opportunities with the rise of interest rates. M&A transactions consummated at high multiples will also put pressure on acquirors and may lead to restructuring initiatives. In the automobile sector, the rise in sales of eco-friendly automobiles and the overall push toward electric vehicles will have a significant impact on the industry, affecting all aspects of the automobile industry, from automobile parts to retail structures.
   

• ESG-related Restructuring
  With the growing importance of ESG considerations in corporate governance and operations, we will likely see continuing efforts by companies to transform their businesses with the purpose of modernizing their ESG practices.