Creditors agree to debt restructuring program
By Choi Kyong-ae
Dongbu Group Chairman Kim Joon-ki will lose management control over the construction-to-semiconductor conglomerate after its creditors agreed to put its flagship unit under a restructuring program, the Korea Development Bank (KDB) said Friday.
"On Thursday, nine creditor banks reached an agreement to push for a program to restructure the debt-ridden Dongbu Steel. They will sign a pact with Dongbu Steel by Nov. 6 to launch the program," a KDB spokesman said. KDB is the main creditor of Dongbu Group.
If Dongbu Steel accepts the decision, the creditors are expected to open a broad review of the company's operations and to closely monitor its businesses, he said. "Upon the company's acceptance of the creditors-led revival plan, Kim will lose his control of the group."
Under the restructuring plan, all the loans extended by the nine creditors will be rolled over to Dec. 31, 2018. Fresh loans worth 500 billion won ($470 million) will be available from the creditors. Among other measures, every 100 existing shares held by Kim and other large shareholders will be reduced to one share in a capital reduction, while every four shares held by individual shareholders will be turned into one.
"A drastic restructuring is essential for the group to remain a going concern. The group's management has completely failed given it is impossible to pay back its entire borrowings despite debt rollovers and fresh loans with lower interest rates," KDB said in the statement.
So a hefty capital reduction will be applied for large shareholders, including Kim, to minimize the impact on small shareholders, it added. Creditors of the troubled STX and Kumho Asiana Group also adopted the same 100:1 capital reduction for their shares in restructuring, the statement said.
Dongbu Steel is already suffering capital erosion and the preferred rights to buy back shares in Dongbu affiliates won't be allowed to Kim due to his mismanagement, it said.
Dongbu Group borrowed about 3.6 trillion won to diversify its business portfolio into semiconductor and steel businesses. But the businesses now suffer liquidity problems after they were hit hard by the 2008 financial crisis.
In November, Dongbu announced a self-rescue plan to raise 3 trillion won by selling assets. But that didn't work. Creditors asked Kim's family to contribute their private assets to help finance the group, but they refused.
Currently, Kim has a 4.04 percent stake in Dongbu Steel, with his son and daughter holding 7.39 percent and 1.25 percent, respectively. As Kim and his families' combined share holdings in Dongbu affiliates stand at 37 percent, the capital reduction will deprive Kim and his relatives of management control.
By Choi Kyong-ae
 |
| Chairman Kim Joon-ki |
"On Thursday, nine creditor banks reached an agreement to push for a program to restructure the debt-ridden Dongbu Steel. They will sign a pact with Dongbu Steel by Nov. 6 to launch the program," a KDB spokesman said. KDB is the main creditor of Dongbu Group.
If Dongbu Steel accepts the decision, the creditors are expected to open a broad review of the company's operations and to closely monitor its businesses, he said. "Upon the company's acceptance of the creditors-led revival plan, Kim will lose his control of the group."
Under the restructuring plan, all the loans extended by the nine creditors will be rolled over to Dec. 31, 2018. Fresh loans worth 500 billion won ($470 million) will be available from the creditors. Among other measures, every 100 existing shares held by Kim and other large shareholders will be reduced to one share in a capital reduction, while every four shares held by individual shareholders will be turned into one.
"A drastic restructuring is essential for the group to remain a going concern. The group's management has completely failed given it is impossible to pay back its entire borrowings despite debt rollovers and fresh loans with lower interest rates," KDB said in the statement.
So a hefty capital reduction will be applied for large shareholders, including Kim, to minimize the impact on small shareholders, it added. Creditors of the troubled STX and Kumho Asiana Group also adopted the same 100:1 capital reduction for their shares in restructuring, the statement said.
Dongbu Steel is already suffering capital erosion and the preferred rights to buy back shares in Dongbu affiliates won't be allowed to Kim due to his mismanagement, it said.
Dongbu Group borrowed about 3.6 trillion won to diversify its business portfolio into semiconductor and steel businesses. But the businesses now suffer liquidity problems after they were hit hard by the 2008 financial crisis.
In November, Dongbu announced a self-rescue plan to raise 3 trillion won by selling assets. But that didn't work. Creditors asked Kim's family to contribute their private assets to help finance the group, but they refused.
Currently, Kim has a 4.04 percent stake in Dongbu Steel, with his son and daughter holding 7.39 percent and 1.25 percent, respectively. As Kim and his families' combined share holdings in Dongbu affiliates stand at 37 percent, the capital reduction will deprive Kim and his relatives of management control.
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