KOTEC consolidating role as nation's credit guarantee fund, while private institutions replace government in confirming and appraising venture businesses Since its designation in May 1998 as a venture guarantee institution in accordance with the Special Act on Ventures Promotion that went into effect in 1997, Korea Technology Credit Guarantee Fund (KOTEC: www.kibo.co.kr) has grown to become the nation's leading venture appraiser and guarantee institution, conducting a total of 8,245 venture appraisals as of the end of 2004, the largest number of approvals among the 16 appraisal bodies in the nation. As of the end of November 2005, the fund has also provided over 3.13 trillion won in financial assistance to a total of 5,372 ventures, accounting for 56.8 percent of 9,456 venture firms in the nation. In the meantime, private institutions, instead of the government, are set to assume the task of confirming and appraising venture businesses according to a legislative motion to be put forward by the government to restructure the venture confirmation system. The definition of a venture firm is also scheduled to be rewritten to mean a technologically outstanding company invested, guaranteed, and credited by venture finance institutions on their own account. Along with such a transformation in the environment for venture financing, the government has opened an access through which companies that have already been credited by KOTEC can be recognized as venture firms if the amount of credits guaranteed and their ratios to total assets exceed a certain amount and ratio. "Moreover," said Han Lee-hun, chairman and president of KOTEC, "most SMEs that lack credit securities but possess pioneering technologies can enjoy benefits as venture firms. The government has put forward a motion to allow credit guarantee providers specialize their operations. When this goes into effect, KOTEC can exclusively deal with credit guarantees and take up an unrivalled place as a Mecca for venture financing." Han said that the underlying policy of KOTEC's operations for 2006 seeks to strengthen SMEs to innovate technologies. To this end, he said, KOTEC will carry out comprehensive evaluations on technologies and marketability rather than financial profile or current state of business, and employ financial resources made available through guarantee savings in big long-term projects. For 2006, he added KOTEC has allocated 7.2 trillion won, out of the 10.5 trillion won guarantees to be provided in the year, for innovation- leading venture firms. "As I have said, we will continue to strengthen our assistance to innovationleading companies that are the growth engine of the nation's economy. By doing so, we can increase the average guarantee balance ratio assigned to these firms from 60 percent in 2005 to 80 percent by 2008," Han added. In the meantime, KOTEC plans to focus more on the sound execution of its operations in 2006. Specifically, it plans to form and operate a guarantee portfolio in order to control the risk and place guarantee assets on a more sound footing. Moreover, it plans to enhance corporate will to reimburse guarantees and induce rollovers with short maturities to long ones by expanding guarantees with over three-year maturities, the redemptions of which are made on installment. In addition, KOTEC plans to continuously increase the ratio of technology-appraised guarantees, out of the 11.6 trillion won total guarantee balance, from 20.8 percent as of the end of November 2005 to 60 percent by 2009. To share profits and disperse risks, KOTEC plans to expand profit-shared commitments linked with tech-appraised assurances. It plans to share investment profits made together with venture capitals that provide partial guarantees with guarantee ratios of 30 to 50 percent in the underwriting of BCs and CBs. At the same time, KOTEC plans to expand companies required to pay guarantee fees to all clientele in addition to those entitled to guarantees as venture start-ups and for work-outs and differentiate guarantee rates according to performances. Since KOTEC's foundation in April 1989, the total amount of guarantees that have been made has amounted to 113 trillion won as of the end of November 2005. Of this, P-CBOs (Primary-Collateralized Bond Obligations) accounted for 2.3 trillion won while 1.7 trillion won was made for the underwriting of local credit guarantees held by credit foundations. In 2005, KOTEC has strived to strengthen a tailor-made credit assistance framework based on a guideline to focus on providing in-depth assistance to SMEs. Even though the credit assistance to have been provided to innovative companies in 2005 was set at 6.8 trillion won, it is forecast that the amount would not have exceeded 5.93 trillion won, or 87.2 percent of the set target. KOTEC attributes the reason for this shortfall to the loss inevitably incurred in the process of resolving the capital shortage that has arisen from the extensive undermining of the 2.3 trillion won in Primary- Collateralized Bond Obligation (P-COB) guarantees made within a short timespan in 2001.