ⓒYONHAP News

A liquidity crunch is rattling the South Korean bond market following a 140 million-odd dollar default by a contractor in a project financing for an amusement park in Gangwon Province. In a bid to stabilize the bond market, Gangwon Province has already backtracked on its controversial decision not to renew its credit guarantee for the Legoland theme park. Still, investor concerns have already had a ripple effect on papers issued or backed by municipal and central governments. The provincial government on Thursday announced it will pay the overdue debt by mid December, a month earlier than initially planned.

Jeong Kwang-yeol, the Gangwon vice governor for economic affairs, said on Thursday that the province will cover the overdue debt held by the municipal-linked developer of Legoland Korea within the year in a bid to stabilize the local financial market.

The vice governor said the province will repay Gangwon Jungdo Development Corporation's(GJC) debt of 205 billion won, or 144 million U.S. dollars, by December 15, more than a month earlier than the January 29, 2023 deadline promised by Governor Kim Jin-tae last week.

Gangwon Province, which made the decision after consulting with the finance ministry, will raise the money through a supplementary budget. 

The provincial government's decision to hasten the debt repayment comes after its initial refusal to fulfill its payment guarantee for the debt froze the local bond market. 

Iwon Jeil Cha, a special purpose company(SPC) set up by the GJC to fund the resort project, missed its initial September 29 due date, and was listed bankrupt earlier this month.

The provincial government then declared that it would begin bankruptcy proceedings for GJC with a local court.

This caused a liquidity crunch in the nation's bond market amid skepticism over commercial papers linked to provincial governments. Gangwon Province's promise to pay off the debt by January did little to assure investors. 

In the hopes of easing such jitters, the central government said earlier this week that it would expand the provision of liquidity to over 50 trillion won.