By Lee Hyo-sik
Staff Reporter
Kumho Asiana Group Wednesday filed an application with its creditors for a debt repayment program for its two struggling units ― Kumho Industrial and Kumho Tire ― in a bid to tide over its growing cash flow problems.
The group's de facto holding firm, Kumho Petrochemical, and Asiana Airlines will undergo a voluntary restructuring scheme in cooperation with creditor banks to improve their financial soundness.
Additionally, the state-run Korea Development Bank (KDB) will acquire Daewoo Engineering & Construction (E&C) while taking over the cash-strapped Kumho Life Insurance jointly with Consus Asset Management.
Honorary group Chairman Park Sam-koo and other founding family members will put their personal assets forward to help boost the financial condition of the country's ninth largest conglomerate.
In a joint press conference with KDB Wednesday, Oh Nam-soo, president of the strategic management division at Kumho Asiana Group, announced the moves.
``It is very regretful to say that we have decided to subject Kumho Industrial and Kumho Tire to a creditor-led repayment program. We take full responsibility for what happened and will make efforts to normalize management,'' Oh said.
Kumho had tried to resolve its cash flow problems by selling Daewoo E&C and other units to strategic investors and implementing self-imposed restructuring measures. But it faced difficulties in disposing of the builder in recent months and had no other choice but to go to the KDB and other creditors, yielding managerial control over the two units in return for fresh capital.
Kumho Asiana mobilized Kumho Industrial and Kumho Tire in 2006 to sign a put option deal with 18 financial investors when taking over Daewoo E&C.
The group promised to buy back the builder's shares on Dec. 15, 2009 if they wanted to sell them at the pre-set price of 31,500 won per share in return for a 3-trillion-won investment, expecting that the stock prices would hover well above that mark. The group spent 6.5 trillion won to take over a 72.1 percent stake in Daewoo.
However, the buy-back option proved to be a disaster as Daewoo shares plummeted to below 15,000 won in the aftermath of the global credit crunch late last year, forcing the group to pay financial investors an additional 4.2 trillion out of its own pocket.
The exercising of the put option deal was pushed back a month to Jan. 15, buying Kumho some time to conclude the sale of Daewoo with two preferred bidders ― Middle East-based Jabez Partners and the TR America consortium of the U.S. They offered to buy Daewoo shares at between 20,000 and 24,000 won a share.
But the bidders had a hard time raising the necessary funds and with the sale going nowhere, Kumho had no choice but to turn to the KDB and other creditors.
In exchange for fresh capital estimated at up to 3 trillion won, the creditors demanded the two Kumho units be subject to a strict debt repayment program. The KDB also decided to take over Daewoo E&C in a ``50 percent plus one'' scheme at about 18,000 won per share, which is higher than its market value of around 13,000 won.
Additionally, the bank demanded that Kumho Petrochemical and other key units of the conglomerate be subject to the program. But Kumho opposed the measure, saying it would lose managerial control over the entire group if the petrochemical company was put under the influence of creditor banks.
Taking responsibility for group mismanagement, honorary Chairman Park and his family members will offer Kumho stock and other personal assets to creditors as collateral in exchange for fresh loans.
Creditors requested that Kumho Industrial and Kumho Tire undergo a stringent restructuring program in a bid to minimize the potential negative effects on the financial sector if the group collapses under mounting debts.
Currently, the group has borrowed a total of 16.5 trillion won ― 3.8 trillion won from the KDB and 12.7 trillion won from commercial lenders and insurers. Additionally, it has leveraged heavily from savings banks and other non-banking sectors.
The KDB will also acquire Kumho Life Insurance jointly with Consus Asset Management, which had been facing difficulties in raising the necessary funds. The asset management firm failed to fund the deal by the due date of Dec. 15 and requested a delay. Consus then proposed that the KDB jointly take over the life insurer with it.