SEOUL (REUTERS) - South Korea on Wednesday (May 20) said the government and the central bank will set up a 10 trillion won (S$11.6 billion) special purpose vehicle (SPV) to directly purchase commercial paper, to calm a local debt market hammered by the coronavirus pandemic.

Speaking at a policy meeting, finance minister Hong Nam Ki said the SPV would buy subprime debt as well as bonds with high credit ratings for six months. The vehicle could be doubled to 20 trillion won if needed.

The SPV will purchase AA-rated corporate debt with maturities shorter than three-years, and some BB-rated debt as well if its credit rating was recently downgraded as a result of the coronavirus shock, a government statement showed.

To fund the 10 trillion won, the Bank of Korea will make loans worth 8 trillion won on as-needed basis, while another 1 trillion won will come from debt issuance by the Korea Development Bank, South Korea's policy lender.