South Korea’s prolonged economic downturn and rising corporate bankruptcies are challenging investment banks in Yeouido’s financial district this year. As demand for corporate financing rises and the once-lucrative real estate project financing (PF) market shrinks, securities firms are shifting their focus to traditional investment banking to meet demand from struggling companies seeking capital and restructuring solutions.
Economic downturns typically drive up demand for investment bankers as companies seek financing and restructuring assistance. Unlike banks, which primarily provide loans, investment banks help firms raise capital and facilitate the distribution of stocks and bonds.
The downturn is hitting businesses of all sizes, from conglomerates to small enterprises. The fallout from the COVID-19 pandemic, previously cushioned by low-interest policy loans, is now pushing many companies to the brink of collapse. Domestic demand plunged further in late 2024 amid political turmoil following President Yoon Suk-yeol’s martial law declaration, driving the economy deeper into recession.
Between January and November 2024, a record 2,729 corporate bankruptcies were filed nationwide. Of these, 1,745 involved liquidation filings by small and medium-sized enterprises (SMEs), while 984 sought corporate rehabilitation. The proportion of so-called “zombie companies” — firms unable to cover interest payments with their operating profits — has continued to rise. According to the Bank of Korea, 16.4% of companies fell into this category at the end of 2023, the highest on record, with the figure likely increasing further last year.
The corporate bond market remains stable, buoyed by early-year issuance activity, but concerns persist over whether non-investment-grade issuers can secure capital amid the downturn. With banks focused on recovering pandemic-era policy loans, cash-strapped firms are turning to mezzanine financing, equity offerings, and asset sales.
Securities companies are bolstering their corporate finance divisions in preparation for the challenges ahead. Meritz Securities is a prime example, having recently hired veteran investment banker Jeong Young-chae, former CEO of NH Investment & Securities, along with Song Chang-ha, a former syndication head at the same firm. Major firms like KB Securities, Korea Investment & Securities, and NH Investment & Securities have restructured their corporate finance divisions, strengthening teams focused on M&As, initial public offerings (IPOs), debt capital markets (DCM), and equity capital markets (ECM). Smaller players like SK Securities and LS Securities have also expanded their investment banking units.
“The role of an investment bank is to accurately assess a company’s growth potential and risks, which aren’t always reflected in credit ratings, and turn their debt into investment-worthy products,” said a senior official at a major securities firm. “IB expertise is honed over time through extensive experience in corporate finance and cannot be developed overnight.”
