Samsung Creates 450M Supplier Financing Fund, I Think!

So did you hear the one about borrowing money for free to pay your own suppliers? That’s similar to the 9+ trillion in negative yielding bonds floating out there – pay us to own a bond. 

Recently I saw some sites reposting a public relations news release about Samsung Electronics setting up a new fund to help suppliers with cash flow.

According to the release,

South Korean giant Samsung Electronics has established a KRW500bn ($450m) fund to enable tier one suppliers to borrow the money they need to pay tier two suppliers. The fund is to be created in June with Hana Bank, Shinhan Bank, and KB Kookmin Bank, says the Korean business news website Pulse.

The new arrangements will allow tier one suppliers to borrow a sum of money equal to their monthly payment to a tier two supplier. The money can be borrowed interest-free for up to a year, extendable to two years.

The scheme is apparently intended to enable tier two suppliers to be paid within 30 days at no financing cost to tier one suppliers.

What, what a minute, did someone say interest-free? Does this even make sense? I understand the Korean Government wants to make sure the Chaebols don’t squeeze their suppliers since they control most of South Korea’s industries ranging from the high-tech sector to automotive manufacturing, food processing and finance. According to the Korea Fair Trade Commission, the top 31 companies in Korean companies account for 84 per cent of the country’s GDP.

But interest-free? Is this #FakeNews? Can this be true?

Since I don't have any contacts at any of the Korean banks to interview who are involved in this structure, I cant verify. But it doesn’t pass the smell test. What systems will be used to monitor the cash flow? What happens if we have a tier 2 supplier bankruptcy?

Also, in this day of fraud and money laundering, Trade Based Money laundering is a very big and poorly misunderstood problem. Combine that with rising interest rates in many jurisdictions, and something doesn’t make sense. But then again, neither does $9 trillion in negative yielding bonds.

Does anyone have any insights here?

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