Thursday, July 24, 2014

pantech offices.jpg

Pantech's building in Digital Media City, Seoul, South Korea.
Pantech's building in Digital Media City, Seoul, South Korea.
4 July 2014

Pantech, which is currently under a debt-workout program, is now faced with the biggest crisis since its foundation. Due to the remote possibility that mobile carriers that asked for a debt-for-equity swap by creditors for management normalization will agree to buy an ownership stake in Pantech, there is growing concern about the debt-ridden company's bankruptcy.

According to industry sources and creditors on July 3, creditor banks including Korea Development Bank suggested a measure worth 480 billion won (US$476 million) aimed at improving the financial structure of Pantech under a debt-workout plan on June 13. They also asked three carriers to make a decision on a debt-for-equity swap valued at 180 billion won by July 4.

Creditor banks decided to swap as much as 300 billion won (US$297 million) of debts with equities, and requested that mobile carriers agree on a debt-for-equity swap worth 1.800 trillion won (US$1.784 billion). However, the three carriers did not give a definitive answer. SK Telecom was asked for around 90 billion won (US$89 million), KT 50 billion won (US$49 million), and LG U+ with 40 billion (US$39 million). The cash-strapped handset maker must pay 1.800 trillion won (US$1.784 billion) of accounts receivable, including an incentive for encouraging sales and compensation for formerly-purchased goods.

In fact, the three carriers appear to be unwilling to agree on a debt-for-equity swap, which is key for Pantech's rehabilitation. An executive at one of the three carriers remarked, “Considering the situation in the market, it is questionable that the debt-for-equity swap will result in Pantech's revival.” The official added, “If our company becomes one of the major shareholders of Pantech, what matters is that we have to take the risk to be responsible for management of the troubled company.”

Creditor banks, on the other hand, reached the conclusion that mobile carriers may need more time to make a decision. They are going to postpone the deadline for submitting an agreement for the debt-for-equity swap until the beginning of the second week of July, if they do not hear from carriers by June 4.

An official at a creditor bank said, “We are scheduled to extend debt restructuring on July 4, on the condition of mobile carriers' agreement on the debt-for-equity swap. But when they refuse to do so in the end, Pantech will inevitably file for a rehabilitation proceeding.”

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