Ssangyong Engineering & Construction (Ssangyong E&C) submitted a high-intensity self-rescue plan to the creditors in September last year after it failed all of the five M&A attempts to overcome the liquidity crisis. Then, Ssangyong E&C implemented radical personnel restructuring. Half of its executive members were held responsible for the crisis and left the company, and about 30% of its 1,200 employees (including short-term contract workers) were laid off.
|Nov 2007||1st public notice of sale|
|Dec 2011||2nd public notice of sale|
|Mar 2012||3rd public notice of sale|
|Jun 2012||4th public notice of sale|
|Aug 2012||5th public notice of sale|
|Feb 2013||Notice of complete capital erosion|
|Feb 26, 2013||Application for workout program|
|Jun 25, 2013||Legal deadline for redemption of debts|
Ssangyong E&C has not paid the wages since it went into the state of capital erosion and applied for a creditor-managed workout program in February this year. Its subcontractors have been barely breathing day by day for the past four months without being paid for their works. That’s because no money has been injected into the company as the decision-making process for a debt workout program has been delayed.
Attention is drawn to if the painfully suffering constructor will dramatically recover just around the corner of the forced court receivership. Now the financial authorities have come forward after the creditors chose to delay the decision on the commencement of the workout program and even the major creditor Woori Bank stood back.
The financial authorities are stepping in for the commencement of the workout program
Woori Bank told the financial authorities on June 10 about the creditors’ intention not to agree on Ssangyong E&C’s workout program. Indeed, it hit a serve that forced the financial authorities to make a decision. Previously, Woori Bank asked the other creditors to submit the letters of agreement no later than June 7 but no creditor did that. Then Woori Bank reached a conclusion that the decision should not be delayed any more.
However, the financial authorities’ position is to arrange more talks among the creditors. A source from the financial authorities dropped a hint of stepping in, saying “We will soon convene the creditor banks’ vice presidents.”
Some industry experts also predict that the financial authorities will not leave this matter unsettled. The financial authorities are already blamed for losing their function as a control tower for the case of STX Pan Ocean which has recently enter the court receivership. And there seems a subtle change in the atmosphere surrounding the creditors who are conscious of public opinion. Woori Bank and Korea Exim Bank have already submitted the letters of agreement, and it is said that Hana Bank and Korea Development Bank (KDB) are internally inclined toward yeas. “As I know, Hana Bank and KDB will agree right after the other creditors submit the letters of agreement,” said the source.
Korea Asset Management Corp (KAMCO) holds the key
Despite the financial authorities’ mediatory efforts, Shinhan Bank and KB Kookmin Bank are still hesitating to agree. The two creditors are against the workout program, emphasizing KAMCO’s role. “KAMCO was the major shareholder of Ssangyong E&C. Now the two banks demand KAMCO’s responsible role in the workout program, which they say will justify the other creditors’ action,” said the source. However, there is no legal ground to have KAMCO join the workout program.
Agreement between the creditors and the interested parties is being delayed, but there is not much time left. Time’s already up in some ways. Legally-accepted delay for the redemption of debts is until June 25, but Woori Bank has set June 7 as the de facto “final deadline” as all of Ssangyong E&C’s overseas projects are at risk of being stalled.
Woori Bank is expected to send the written notice about the current restructuring process to the foreign contracting parties of Ssangyong E&C’s overseas project agreements no later than June 12.
However, Ssangyong E&C will not be able to avoid the court receivership if the creditors eventually fail to agree on the workout program. The source said, “Ssangyong E&C has yet to pay 400 billion won for the B2B transactions and subcontractors’ works. It doesn’t have the minimum capital for the court receivership.”
Ready to Start Corporate Restructuring Process?
On June 13, Shinhan Bank agreed to the start of the workout process of Ssangyong Construction to follow Kookmin Bank and let the builder take a breather after some 100 days of financial troubles.
According to the creditors, Shinhan Bank decided to submit its agreement in the credit committee meeting held on that day to raise the credit ratio of the creditor banks in favor of the workout process to 45.52% -- Woori Bank (24.22%), Export-Import Bank of Korea (1.5%), Kookmin Bank (7.95%) and Shinhan Bank (11.85%). In order for the process to start, the percentage has to reach 75%, which is expected to be likely with the others in the group having expressed their consent on certain conditions.
The Seoul Guarantee Insurance (15.16%) and the Korea Development Bank have said that they will join the crowd if Kookmin and Shinhan Banks agree to the workout process. Under the circumstances, the process is expected to be kicked off through another meeting on June 14. If the former two agree, the percentage goes up to 76.01%. Woori Bank, the main creditor bank, is going to give a notice of process cancellation to Ssangyong Construction if the agreement is not reached by June 14. Therefore, the other creditor banks are likely to submit their agreements on that day.
Once the procedure begins, Ssangyong Construction can avoid delisting and be given 445 billion won for financing, 240 billion won for overseas business and 107 billion won for financing conversion. Then, it is going to pay approximately 200 billion won to about 1,400 partner firms.
It is thought that the creditor banks, which insisted on the Korea Asset Management Corporation’s sharing the burden, have changed their stance in a hurry because of the pressure from the financial authorities. Also, it seems that they felt some pressure as Ssangyong Construction failed to win some overseas projects due to the delay of the corporate restructuring process. The builder has missed or is likely to miss out on US$200 million and US$ 630 million projects in Singapore as it has failed to submit its data on financial structure improvement. The company was selected as the preferred bidder for a US$1.13 billion subway construction project in the Middle East late last month but it has to hand in the data by June 14, too.