Kumho Gets Green Light on Restructuring
By Kim Tong-hyung
Staff Reporter
The troubled Kumho Asiana Group can breathe a little easier after the financial investors of Daewoo Engineering and Construction accepted the terms for the sales of their stake in the builder.
This allows Kumho Asiana to push ahead with restructuring, while avoiding losing Kumho Industrial to court receivership. But industry watchers say that the complicated issues that remain in some of the group's key affiliates suggest that more setbacks could lie ahead.
Kumho Asiana's financial condition has been deteriorating in the past few years after it bit off more than it could chew in lavish merger and acquisition (M&A) deals.
Especially crippling was the absorbing of Daewoo Engineering in 2006, which Kumho Asiana agreed to pay 6.4 trillion won (about $5.5 billion) for a 72.1 percent stake in the builder.
More than half of the money came from a group of financial investors, including banks and private equity funds.
In the wake of its liquidity crisis, Kumho Asiana had attempted to raise emergency funds by selling its stakes in Daewoo Engineering. However, the group struggled after facing a cash call worth around 4 trillion won from their investors at the time, who exercised their rights to sell their shares in the builder back to Kumho Asiana at above-market prices at the end of the year.
Back in 2006, Kumho Asiana promised the investors that it would buy back a 39 percent stake in Daewoo Engineering if the builder's stock prices fell below 31,500 won by Dec. 15, 2009.
This proved to be an ill-advised gamble as Daewoo Engineering's shares plummeted below 15,000 won in the aftermath of the global economic downturn.
In December, Korea Development Bank (KDB) proposed that a private equity fund, led by the state lender, would buy 50 percent plus one share in Daewoo Engineering for 18,000 won per share.
With the 18 financial investors now deciding to back the plan and agreeing to sell their Daewoo Engineering stakes to a KDB-led private equity fund at that price, Kumho Asiana looks to be at least getting a shot at a comeback.
However, the road back to respectability is expected to be a long one. Kumho Asiana had struggled to find a taker for Daewoo Engineering, and the idea now is to take over the KDB-led fund temporarily and perform a makeover to have the builder looking more attractive to a future owner.
KDB will certainly have to work its magic as the paucity of interest in Daewoo Engineering is a concern.
After mulling over the issue for months, STX Group decided Daewoo Engineering won't be on its shopping list, and steel giant, POSCO, currently one of the biggest hands in the M&A market, never seemed to have much interest in the first place.
There are speculations that DongKuk Steel might be interested, but whether the mid-sized steelmaker would have the resources to swallow Daewoo Engineering remains uncertain.
The prospects for the creditor-led workout programs at other Kumho Asiana affiliates are murky as well.
The KDB and other creditors are expecting to finalize a workout program for Kumho Industrial by the end of the month, although the bank admits that the process could possibly take longer.
A workout for Kumho Tires could prove to be more difficult, with the company's unionists voting to approve a strike to resist KDB's restructuring plan.