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M&A Inevitable if Management Not Normalized in 3 Years
Kumho Industrial Company
M&A Inevitable if Management Not Normalized in 3 Years
  • By matthew
  • August 21, 2013, 09:02
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Kumho Industrial Company creditors have allowed the Kumho Asiana Group to make a cross-shareholding structure and put Kumho Asiana Group CEO Park Sam-gu in charge of normalization of management by registering him as the Director of Kumho Industrial Company. 

On August 20, Industrial Bank of Korea and Kumho Industrial Company creditors began reviewing cross-shareholding (recapitalization) for Asiana Airline’s Kumho Industrial Company corporate bills (CPs) and the creditors’ leftover uncovered bonds, in order to improve Kumho Industrial Company’s financial structure and management normalization. 

After registering CEO Park as the director, if normalizing the management succeeds, then creditors will receive preemption preferences for shares. If not, then both the creditors’ and CEO Park’s shares will be sold. The creditors’ decision to allow cross-shareholding of 79 billion won (US$70 million) of Asiana Airline’s Kumho Industrial Company CP is to avoid de-listing or creating an administrative issue.

If the 50.8 billion won (US$45.5 million) plain bonds owned by the creditors go through a debt-equity swap and Kumho Industrial Company affiliate (with 30.08% share) Asiana Airlines’ CPs 79 billion won (US$70 million) are also swapped (13.0%), then Kumho Industrial Company and Asiana Airlines will have mutual investment. 

The creditors’ share has decreased from 76.9% to 69.7% by June, and CEO Park’s share dropped from 14.2% to 10.6%. Asiana Airlines’ share in Kumho Industrial Company, after the CPs debt-equity swap, is 13.0%. 

One of the Industrial Bank of Korea creditors said, “This has been inspected for two months from June to July,” and added, “Right now, CEO Park is doing actual management while not being in charge of the situation. We’re working on solving this issue as well.”

This creditor also mentioned, “If management normalization succeeds after three years of registering CEO Park as the director, then the creditors get preemption preferences to purchase shares. If it fails, then CEO Park will step down from management and an M&A will take place.”

The main creditor bank, Industrial Bank of Korea, hosted a briefing session on August 14 about this normalization solution. Creditors will draw up a decision by August 22 and transmit a resolution letter by September if agreed. Over 75% of creditors must agree in order to proceed. There are about 102 creditors, so the chance of rejection is real.