Chicken Game?
Kumho Tire creditors, including the Korea Development Bank (KDB), made clear on June 20 that they would reconsider whether to retain their business relations with Kumho Asiana Group if the sale of the company falls through. The dispute between the creditors and Kumho Asiana Group Chairman Park Sam-koo is escalating to a game of chicken.
Currently, creditors of Kumho Tire include the KDB, Woori Bank, KB Kookmin Bank, KEB Hana Bank, NH Nonghyup Bank and Export-Import Bank of Korea, which are major banks in the nation. The KDB is the main bank of Kumho Group affiliates and the main creditor bank of Kumho Tire and Asiana Airlines.
So, all the financial transactions of Kumho Group’s affiliates will be suspended when the creditors take financial sanction against Kumho Group.
However, the creditor banks would not be able to do so because they can face criticism for blocking financial transactions of other affiliates which are in normal business, instead of Kumho Tire, and lose money in the end.
An official from the creditors said, “When the sale of Kumho Tire fall through, trust between creidtors and Kumho Group will be destroyed. It will be difficult to completely break off financial transactions with Kumho Group but the group will be able to have difficulties in settling liquidity problems when it wants to extend its bond maturity or raise new funds.”
In addition, the creditors clearly said there will be no additional support if the deal fails to go through. It means that they will put Kumho Tire under court receivership when the company has liquidity problems including delay of bond interest payment after the sale falls through.
Kumho Tire pays 100 billion won (US$87.72 million) to its creditors every year for interest alone. However, the company posted only 120 billion won (US$105.26 million) in operating profit last year and recorded operating losses in the first quarter this year. Since it is operating at a loss now, it will not be able to avoid a court receivership without the creditors’ support unless it starts turning a profit.
The creditors have also decided to deprive Chairman Park of his right of first refusal for Kumho Tire. They said they granted the right of first refusal to him as an incentive to manage business well and revive Kumho Tire after finishing a creditor-initiated workout program, but it is reasonable to take back the right because he caused a management aggravation and failed to sell the company. In this case, however, Park can file a suit against the creditors.