By Lee Hyo-sik
Staff Reporter
The state-run Korea Development Bank (KDB) and other financial firms have decided to freeze debts of Kumho Petrochemical and Asiana Airlines for one year to help the struggling Kumho Asiana Group tide over its worsening cash flow problem.
They also plan to appoint financial auditors to oversee the money management and restructuring of the two flagship units of the nation's ninth-largest conglomerate, while taking equity and other assets held by the debt-ridden firms as collateral when providing fresh loans.
According to Kumho creditors Monday, liabilities of the group's de facto holding firm, Kumho Petrochemical, and Korea's second-largest air carrier, Asiana Airlines, will be frozen for one year to help them restructure themselves into a more financially-sound business entity.
Last Wednesday, the two companies pledged to undergo voluntary restructuring in cooperation with creditors to improve their financial conditions.
The KDB had demanded that they and other key units of the conglomerate be subject to a strict creditor-led debt repayment program. But Kumho opposed the measure, saying it would lose managerial control over the entire group if they were put under the influence of creditor banks.
Currently, Kumho Petrochemical and Asiana Airlines owe banks and other financial institutions 2.2 trillion won and 3.76 trillion won, respectively.
A creditor bank official said the two will go through a pre-workout program to improve financial soundness, adding that since they borrowed 77 percent of the nearly 6 trillion won in loans from KDB and other banks, the KDB-initiated, pre-workout program will get the green light.
Additionally, creditors will dispatch a group of financial managers to Kumho Petrochemical and Asiana Airlines to control cash flow management, self-imposed restructuring measures and other corporate decision making.
They will also require the two Kumho units to put forward their equity stakes in group affiliates as collateral in return for fresh loans. The petrochemical firm holds a 21.07 percent stake in Kumho Industrial, 47.31 percent in Kumho Tire and 26.75 percent in Asiana Airlines. The airline has a 23.95 percent stake in Korea Express.
At the same time, creditors are putting greater pressure on Kumho Petrochemical and Asiana Airlines to more drastically restructure themselves, saying the self-rescue plan is not enough.
They plan to put the two under a creditor-led debt workout program if their restructuring is not satisfactory.
Creditors also demand that honorary group Chairman Park Sam-koo and other founding family members take responsibility for mismanagement, and that they should give not only their Kumho stocks, but also real estate and other personal assets to creditors as collateral in exchange for fresh loans.
Meanwhile, creditors will freeze debts of Kumho Industrial and Kumho Tire, carry out due diligence for eight weeks and finalize a debt repayment program for the two units by the end of February. The two enterprises turned to creditors for help last week to reverse their worsening liquidity.
Creditors are saying Kumho Industrial should convert its debt into equity, reduce its capital and implement a range of measures to bring down its 500 percent debt-to-equity ratio to below 300 percent. ``We will set a target for its debt-to-equity ratio, the size of capital reduction and other financial restructuring goals at the upcoming creditors' meeting,'' they said.
Additionally, KDB has decided to acquire Daewoo Engineering & Construction (E&C) through a private equity fund and has begun seeking strategic investors among large corporations here, including POSCO. Last week, KDB pledged 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.
A KDB official said the bank will conclude a plan to take over the builder this month, adding it will send a request for proposal to several business groups.
In 2006, Kumho Asiana mobilized Kumho Industrial and Kumho Tire 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 price 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 KDB and other creditors.