JoongAng Group's fate split between court, creditors

JoongAng Group Vice Chairman Hong Jeong-do leaves the Seoul Bankruptcy Court in Seoul’s Seocho District, Tuesday, after attending hearings on rehabilitation filings by JoongAng Group affiliates. Joint Press Corps

The fate of JTBC and other JoongAng Group affiliates now lies with the court amid their worsening liquidity problems, while the normalization of the group’s core company, JoongAng Ilbo, depends on its creditors, according to industry officials and analysts Wednesday.

Five key affiliates, including broadcaster JTBC and holding company JoongAng Holdings, have recently filed for rehabilitation proceedings. Major newspaper JoongAng Ilbo has also formally applied for a workout with its lead creditor, Hana Bank, amid the group’s financial strain.

The Seoul Bankruptcy Court held hearings with the representatives of the five companies on Tuesday, marking the start of a full-scale review of their rehabilitation cases.

Executives who attended outlined the group’s debt exposure and proposed restructuring measures to the court.

“I am sorry. We will fully comply with the court’s decision,” Hong Jeong-do, vice chairman of JoongAng Group, told reporters near the court.

The group’s restructuring crisis began after JTBC defaulted on June 12, failing to repay 20.6 billion won ($13.4 million) in asset-backed debt at maturity. This was followed by rehabilitation filings from JoongAng Holdings and three other affiliates on June 14. JTBC submitted its own rehabilitation petition to the court on June 15.

JTBC also requested an autonomous restructuring support (ARS) program alongside its rehabilitation filing. The scheme gives financially troubled companies an opportunity to negotiate debt adjustments with creditors before entering full-fledged court-supervised rehabilitation.

If the court approves the request, creditor negotiations could continue for up to three months. If not, and the court moves ahead with rehabilitation proceedings, JTBC would enter a formal restructuring process overseen by the judiciary.

The country’s Debtor Rehabilitation and Bankruptcy Act requires the court to decide within one month whether to begin rehabilitation proceedings. Since the applications were filed on June 14 and 15, a ruling is expected by mid-July at the latest.

“ARS may be JTBC’s preferred option, but the chances of securing court approval appear relatively slim, given that the broadcaster has already defaulted on its obligations and multiple affiliates have entered rehabilitation proceedings,” a financial investment industry official said. “At this stage, a court-directed restructuring appears to be the more probable outcome.”

A special edition of JoongAng Ilbo is distributed near the National Assembly in Seoul's Yeouido, Dec. 14, 2024, after the Assembly approved the impeachment motion against then-President Yoon Suk Yeol over his declaration of martial law. Courtesy of JoongAng Ilbo

JoongAng Ilbo, the cornerstone of the group, chose a different path. After a 22 billion won commercial paper issue was officially declared in default on June 19, the newspaper applied for a workout program rather than joining its affiliates in rehabilitation proceedings.

A workout is a debt restructuring process conducted through negotiations with creditors, allowing a company to retain more control over its restructuring than under a court-supervised rehabilitation process.

If creditors approve the plan, the newspaper will enter negotiations to restructure its debt, including extending maturities and revising repayment terms.

However, should creditors refuse to support the workout or if negotiations fail to produce an agreement, the company could eventually be forced to pursue rehabilitation proceedings.

As a result, the future of JTBC and other affiliates now rests largely with the court, while JoongAng Ilbo’s path to recovery hinges on the decision of its creditors.

JoongAng Ilbo said in a statement that it is working with creditors and other stakeholders to complete its workout program and normalize operations, emphasizing that it remains an independently operated entity, separate from affiliates undergoing rehabilitation. It also stressed that its core businesses continue to operate normally and that it has posted operating profits for 13 consecutive years.

“The current liquidity crunch stems not from weaknesses in our core business, but from the spillover effects of financial difficulties at affiliated companies,” the newspaper said, describing the situation as a temporary funding strain.

Analysts said JoongAng Group’s liquidity crisis could weigh on the lower-rated corporate bond market but is unlikely to trigger broader credit contagion across the corporate debt market.

“The risk of broader contagion is limited because the defaults are concentrated among BBB-rated issuers and financial institutions have relatively small exposure,” said Kim Sang-in, a credit analyst at Shinhan Securities. “However, lower-rated companies may face greater difficulty raising funds as investors become more cautious and lenders tighten risk management.”

Meanwhile, SLL JoongAng, the only major affiliate that has not entered rehabilitation proceedings, reportedly repaid in full a 5 billion won short-term electronic bond that matured on Wednesday.

The repayment has reinforced market expectations that JoongAng Group may seek to sell SLL JoongAng as part of its restructuring efforts. Unlike affiliates undergoing rehabilitation, SLL JoongAng has demonstrated an ability to meet its obligations with its own cash flow, a factor that could support its valuation in a potential sale.

Market participants are now closely monitoring SLL JoongAng’s upcoming debt maturities. The company faces an additional 7.5 billion won in short-term debt repayments through August, and investors are watching whether it can continue to meet those obligations without difficulty.