By Kim Tae-jong
The construction affiliate of the Woongjin Group, a mid-tier conglomerate, was declared bankrupt Wednesday and filed an application to undergo a court-managed workout program.
The move is expected to strike a severe blow to the group, which is already suffering from a liquidity shortage. Woongjin Holdings also filed for court receivership with the Seoul Central District Court the same day, saying it was the only option to save the entire group.
Kukdong Engineering and Construction, went belly up after failing to honor commercial paper worth 15 billion won due Tuesday, and Wednesday filed an application for court receivership to undergo a second court-managed workout program after a first one in 1998. The firm was acquired by Woongjin in 2007.
According to industry insiders, Kukdong has long suffered a liquidity shortage. It has already paid extra interest for overdue loans of 11.4 billion won to KB Kookmin Bank since Sept. 13 before the bankruptcy declaration.
The group decided not to help its troubled affiliate pay the promissory note as the construction firm additionally has to repay debt of 100 billion won this week. Woongjin feared that the cash injection would damage the financial health of its other business units.
Initially, the group was expected to help its troubled affiliate survive by injecting part of the funds it will receive after selling its cash-cow affiliate Woongjin Coway to MBK Partners this Friday.
The private equity fund was selected to acquire a controlling stake in the nation’s largest water purifier and bidet manufacturer for 1.2 trillion won or 50,000 won per share last month.
But the group gave up on the plan because it would have had to pump at least 330 billion won into the subsidiary, which was too big a burden as the group also has to provide financial support to other ailing affiliates such as Woongjin Polysilicon and Seoul Savings Bank.
“They probably thought that the capital injection would be a risky decision as it could damage the entire group,” an analyst said.
According to market sources, the group first has to repay 569 billion won in loans taken out by Woongjin Holdings and other affiliates with Woongjun Coway being the collateral.
Woongjin Holdings filed for a court-managed workout program because it stood as a joint surety for a 1 trillion won loan taken out by Kukdong, but it cannot afford to repay it.
Kukdong E&C was one of the 30 largest companies in Korea in 1987 after enjoying a heyday with the booming housing market from the 1960s to the 1980s.
e3dward@koreatimes.co.kr