10 South Korean Conglomerates to be Controlled by Creditor Banks This Year

According to the Financial Supervisory Service, creditor banks are planning to sign debt restructuring agreements this month with 10 out of the 39 South Korean conglomerates in the main debtor group. Then, the 10 business groups have to prepare and implement intensive debt reduction measures.

Earlier, the Financial Supervisory services included the 39 conglomerates into the main debtor group based on the fact that each had a credit exposure of at least 1.3581 trillion won in the banking sector as of the end of last year and then looked into their financial structures with respective creditor banks. The 10 groups include Sungdong Shipbuilding & Marine Engineering, Hanjin, Hanjin Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Kumho Asiana.

STX Offshore & Shipbuilding was not included in the category owing to its court receivership. The Hyundai Group was not included as well as Hyundai Merchant Marine, which signed a voluntary agreement lately, is scheduled to be spun off soon. Dongkuk Steel, which had been subject to a debt restructuring agreement last year, was excluded this year with its debt ratio reduced.

Homeplus, in the meantime, managed to avoid the debt restructuring agreement in spite of a very high debt ratio. The ratio skyrocketed last year after MBK Partners acquired the management rights of the company and borrowed money for the acquisition by using assets of Homeplus as security. The financial authorities and main creditor KB Kookmin Bank was planning to apply the debt restructuring agreement to Homeplus at first for its deteriorated financial structure, but decided the other way around in the end in view of the fact that the deterioration was because of acquisition financing already subject to a debt repayment agreement.

The number of conglomerates that have to implement such measures is one less compared to last year. Still, the financial authorities are going to filter out underperforming subsidiaries thoroughly through creditor banks’ separate credit risk assessments currently underway with regard to major business groups each with a credit exposure of at least 50 billion won. The creditor banks are planning to complete their assessments and come up with a list of restructuring targets before the end of this month. The number of groups on this year’s list is expected to be larger than last year’s with more conservative criteria applied and various types of risks reflected along with cash flow.