Another Suggestion
It has been found that Kumho Asiana Group chairman Park Sam-koo met with Korea Development Bank, Woori Bank, KB Kookmin Bank and KEB Hana Bank between late last month and early this month and proposed to carry out a capital increase of 200 billion won (US$180 million) with investors friendly to himself if the sale of Kumho Tire fails.
According to the creditors, what the chairman is looking forward to is the price of the stock of Kumho Tire dropping to its face value 5,000 won after the sale of the company fails because he can get more shares with less money as the stock price falls. If the capital increase is carried out at the face value, the chairman can get approximately 40 million shares or 20% while the share of the creditors is reduced from 42.01% to about 33%. As of July 10, the stock price was 8,070 won per share.
The chairman also proposed to sell 53% of the company’s shares consisting of the shares resulting from the capital increase and the shares of the creditors by competitive bidding after the company is stabilized. This is for the chairman to give up on his right of first refusal, maintain his control of the company, and participate in the competitive bidding in the future. The creditors mentioned in response that there is no other option but a negotiated contract with the chairman because his proposal leads to a significant decrease in the size of the company.
The chairman proposed to sell the company’s business units in China, too. The units consist of its factories located in Nanjing, Tianjin and Changchun and its sales corporation in Shanghai. The idea is to deal with the liquidity problem of the company by preparing 100 billion won to 400 billion won by providing the technology, brand and sales support networks of Kumho Tire. At present, Kumho Tire has approximately 20 billion won in cash on hand and it is likely to show a negative cash flow in the middle of this month. The creditors are assuming that the company cannot be stabilized until the amount of its cash reaches 50 billion won.
According to the creditors, the sale of the business units in China lacks practicality because it can be done only after their 620 billion won loans from South Korean financial institutions and 100 billion won borrowings from the headquarters of Kumho Tire are reduced and such a reduction will lead to a significant loss on the part of the creditors and a substantial deterioration of the financial structure of the headquarters.
The chairman’s proposal also included the sale of Kumho Tire’s 18 million Daewoo E&C shares. In response, the creditors said that the shares are scheduled to be used solely for repayment of borrowings and will not be used for liquidity-related purposes.
In the meantime, the creditors proposed to accept the chairman’s request for a trademark fee of 0.5% and reduce the duration in return from 20 years to 12.5 years. The chairman should send a reply on or before July 13. If the chairman accepts the proposal, the creditors will cover 84.7 billion won, that is, the difference between 0.2% and 0.5%, for preferred bidder Qingdao Doublestar Tire Industrial.