Liquidity Crisis
Big businesses on the verge of a liquidity crisis or under financial pressure due to heavy borrowing are coming up with self-help measures such as asset disposal and capital expansion one after another. The purpose of such measures is to take some action for financial restructuring in advance, in order to dispel the concerns of market participants. Their creditors are assisting them by means of debt-equity swaps, expedited underwriting of corporate bonds, and other deals.
The Dongbu Group, Keangnam Enterprise, Taihan Electric Wire, Hyundai Merchant Marine, and many more have recently announced such plans. The Dongbu Group applied for an expedited underwriting of Dongbu Steel’s corporate bonds with Korea Development Bank (KDB), its main creditor bank, on October 17. The company, which chose the method to deal with 105 billion won (US$98.9 million) worth of debentures of the steel manufacturer maturing in December this year, could take a breather on that day, as Dongbu Construction signed a contract with Consus Asset Management to sell its office building in Dongja-dong, Seoul for approximately 300 billion won (US$283 million).
Dongbu Construction’s total debt amount reached 658.8 billion won (US$620.6 million) as of the end of August, 584.5 billion won (US$550.6 million) of which matures within a year. The debt ratio amounted to 499.4% as of late June. Corporate bonds worth 277 billion won (US$261 million) are scheduled to mature until the end of next year, and Dongbu Construction succeeded in preparing cash to hold out with until then by selling their office building.
Keangnam Enterprise is also trying to ease the worries of investors by publicly releasing new financing plans worth 300 billion won (US$283 million) in total. At present, the amount of funds required for the company to repay debts, accounts receivable, and electronic bills by the end of 2013 is estimated at 265 billion won (US$249 million). According to the new plans, a total of 299.5 billion won (US$282.3 million) is expected to flow into the company, including 210 billion won (US$197.8 million) in construction project costs, and the company’s cash flow is forecast to be stable with the remaining 34.5 billion won (US$32.5 million). As of the last day of June, the company’s total assets and liabilities were 1.8275 trillion won (US$1.7215 billion) and 1.2517 trillion won (US$1.1791 billion), respectively. The debt ratio was 217.4%, and the company turned to a deficit last year with a current net loss of 24.3 billion won (US$22.9 million).
Some other conglomerates are moving ahead with similar plans with financial institution backing. For example, Taihan Electric Wire, which has impaired capital and is on the brink of being delisted, has sped up its debt restructuring, since Chairman Seol Yoon-seok gave up on his management rights earlier this month. The creditors are planning to convert 670 billion won (US$631 million) out of its 1.3 trillion won (US$1.2 billion) debt into equity within this year. The cable manufacturer, in fact, has been engaged in such aggressive efforts since 2009, when it concluded an agreement with its main creditor, Hana Bank, to the same end. Taihan has sold a few real estate assets and subsidiaries during the past three years.
Hyundai Merchant Marine and Hanjin Shipping, both of which are under liquidity pressure due to the sluggish market, are also accelerating improving financial structures with the aid of banks. The former has recently succeeded in a conversion issue of 280 billion won (US$264 million) of debentures maturing on October 22 by using the expedited underwriting of the bonds. It signed a special loan transaction agreement with main creditor bank, KDB. Hyundai Elevator, the largest shareholder of Hyundai Merchant Marine, entrusted the bank with the rights to dispose of 5% of the company shares. This means that the company is trying to increase its liquidity without borrowing more by way of asset disposal, and the largest shareholder will be responsible at least in part if the program goes awry.
Hanjin Shipping, which has 255 billion won (US$240 million) of debentures maturing by September of next year, is planning to issue perpetual bonds of about 400 billion won (US$377 million), too. It is in negotiations with KDB, Woori Bank, and Hana Bank now with regard to payment guarantees.
In the meantime, five subsidiaries of the KOLON Group, including construction arm KOLON Global, have recently secured some funds through KDB’s credit granting and purchase guarantee. The financing was made by issuing 180 billion won (US$169 million) worth of primary collateralized bond obligations (P-CBO). Kumho Industrial Development, which is going through a workout led by its creditors, has completed a paid-in capital increase of 124 billion won (US$117 million) recently, too. 30% of the IBK-KStone Partners private equity fund has been sold to Kumho Terminal at a price of 170 billion won (US$160 million).