Friday, December 13, 2019
Sales of Kumho Tire Back To Square One
Vain Attempt for Long Time
Sales of Kumho Tire Back To Square One
  • By Jung Min-hee
  • September 13, 2017, 08:15
Share articles

Creditors of Kumho Tire rejected the self-rescue plan submitted by Kumho Asiana Group chairman Park Sam-koo on September 12. (photo courtesy: Jisikbaekwa)
Creditors of Kumho Tire rejected the self-rescue plan submitted by Kumho Asiana Group chairman Park Sam-koo on September 12. (photo courtesy: Jisikbaekwa)


Amid the trouble with Kumho trademark between creditors and chairman Park Sam-koo, Kumho Tire's preferred bidder Doublestar sent an agreement for the cancellation of a stock purchase agreement (SPA) to creditors on September 12, which put the sale of Kumho Tire finally aborted.

As Doublestar announced its intention to agree to the termination of the contract, the SPA concluded between creditors and Doublestar in March, is expected to be nullified.

Earlier, creditors demanded that Kumho Tire submit a self-rescue plan to them in preparation for the cancellation of the sale to Doublestar. Park Sam-koo, chairman of the Kumho Asiana Group, handed in the self-help plan for Kumho Tire to creditors in the afternoon of the day.

If Kumho Tire’s self-rescue plan is accepted, it will extend the maturity of debts. But if creditors are not satisfied with the self-rescue plan, Kumho Tire may enter court receivership or a pre-packaged plan which is short-term court receivership.

Earlier it was said that Kumho Asiana Group chairman Park considered selling off the equities in Daewoo E&C and a plant in China as well as issuing new shares to be purchased in reference to a self-help plan for Kumho Tire.

Creditors Reject Chairman Park’s Self-Help Plan

Kumho Asiana Group chairman Park Sam-koo submitted a self-rescue plan to take over Kumho Tires at 200 billion won (US$180 million) on September 12 but creditors rejected the plan, believing that the plan had some problems.

According to the financial industry and the tire industry on September 13, Lee Han-seop, president of Kumho Tire, visited Korea Development Bank (KDB)'s head office and submitted the self-help plan costing Kumho Tire about 700 billion won (US$630 million). The company said it will sell its stake in the Chinese plant at 350 billion won (US$315 million) to 400 billion won (US$360 million), issuing 200 billion won (US$180 million) worth of new shares, selling off its 4.4-percent stake amounting to 130 billion won in Daewoo E&C, restructurings and the return of wages. "We submitted our plan according to guidelines set by the KDB," Kumho Tire said.

But controversy is expected to brew as chairman Park said that he will virtually take over Kumho Tire at a bargain price without bearing any responsibility for his management failure for seven years since 2010. If Kumho Tire issues new shares of 200 billion won (US$180 million) for a capital increase with consideration, chairman Park will hold a 20% stake. Then, chairman Park will become the largest shareholder, relegating creditors, making it difficult to sell off the tire company again.

The self-rescue plan excluded blue-collar workers who have been against the overseas sell-off of Kumho Tire from a restructuring list, which puts the self-rescue plan into question. Kumho Tire said that returning wages and restructurings will apply white-collar workers and executives only. The average labor cost per blue-collar worker at Kumho Tire is 82 million won (US$73,000) which is the highest in the domestic tire industry, but the union went on a strike several times, demanding a raise in wages several times.

It is pointed out that the plan to sell off a factory in China is far from being down to earth. Kumho Tire's Chinese factory is suffering massive losses and it is a big challenge to find the new owner of the factory. Even if the factory is sold off, it will be difficult to pay off debt (about 770 billion won or US$693 million) owed by the Chinese factory.

Creditors that already rejected the self-help plan will receive a revised self-rescue plan and decide whether to accept it by resuming a stockholders council meeting by next week. At the end of this month, 1.3 trillion won (US$1.17 billion) worth of bonds will mature at the head office and 40 billion won (US$36 million) worth of bonds at Kumho Tire’s Chinese corporation. If both parties fail to reach an agreement, creditors may dismiss Park and take the tire company into a workout or court receivership.

On the other hand, chairman Park clarified his position to creditors, saying that he will abandon his preferential rights to acquire shares if the sell-off of the Chinese factory and a capital increase of 200 billion won (US$180 million) with consideration in the self-help plan fail on September 12. As chairman Park burned his boats for the revival of Kumho Tire, a lot of attention is being paid to how creditors will respond to the chairman’s proposal. Meanwhile, creditors have been giving negative views on the capital increase through an affiliate of the Kumho Asiana Group, saying it a kind of holdout.

Starting to Normalization Work

Creditors of Kumho Tire finally decided, on September 26, to go ahead with normalization work after judging that a self-help plan sent from Kumho Asiana Group chairman Park Sang-koo was not enough and rejecting it. In addition, chairman Park will immediately step down as chairman and give up primary rights to buy.

The Korea Development Bank and the Kumho Asiana Group intensively discussed various management issues facing Kumho Tire and ways to overcome them. As a result, the bank and group announced that they came to a conclusion that Kumho Tire's self-rescue plan falls short, taking into consideration its effectiveness and feasibility, and agreed to speed up the task of normalizing the group with creditors taking the initiative.

Chairman Park decided to immediately step down along with the current management as chairman and give up primary rights to buy to help Kumho Tire normalize early so contribute to the stability of the local economy and employees’ job security. 

To top it off, the Kumho Asiana Group stated that it was planning to fully support Kumho Tire through methods such as granting a permanent right to use the tire company’s trademark to prevent problems with trademark rights in the normalization of Kumho Tire.

As a consequence, the Korea Development Bank announced that the bank will convene a creditors' council as early as possible to discuss plans and schedules for normalization by a voluntary agreement and do everything in its power to ensure that Kumho Tires will be normalized early, in cooperation with all stakeholders.