Kumho Asiana Group, Korea’s eighth largest conglomerate, announced its decision to put Kumho Industrial Co., Ltd. and Kumho Tires Co., Inc. under workout process during a press conference held at Korea Development Bank on December 30, 2009 to solve liquidity problems incurred due to the large-scale M&As of Daewoo Engineering and Construction Co., Ltd. and Korea Express Co., Ltd. On January 6, 2010, creditors of Kumho Industrial Co. and Kumho Tires agreed to provide more than 75% in support. While the Group’s volume of debt is about 18 trillion won, Kumho Industrial Co. and Kumho Tires have debts of 2 trillion won and 1.6 trillion won, respectively. Based on the decision for workout process, the debts of the two companies will be suspended for three months. Creditors will send a finance or management team to establish plans for normalization of management from January to March, 2010. In April, an MOU for normalization of management is scheduled.
The reason for the Group’s restructuring includes over-borrowing to acquire Daewoo Engineering and Construction and Korea Express and the global financial crisis. However, analysts say that the biggest reason is the put-back option held by financial investors of Daewoo Engineering & Construction with the deadline scheduled for January 15, 2010. The Group worked to sell Gumho Life Insurance, Kumho Rent A Car, etc. to solve liquidity problems before June 2009 when the decision to sell Daewoo Engineering & Construction was made.
In the meantime, it was found on January 6 that Kumho Industrial Co. transferred 12.7% of its shares of Asiana Airlines, Inc. to Kumho Petrochemical Co., Ltd. for 95 billion won on December 21, 2009, nine days before its application for the workout. This finding led to creditors’ strong opposition, endangering the planned workout and causing conflict among creditors. Creditors feared possible damages as the healthy company was transferred to a company which escaped the workout, causing Woori Bank to claim that it would damage the corporate value of Kumho Industrial Co. The bank asked for the shares to be returned to Kumho Industrial Co. However, Korea Development Bank which bought the shares of Asiana Airlines said the request was unenforceable, and additional payment in consideration of the premium could be in place. Kumho Petrochemical, excluded from the subject of the workout, has now become the largest shareholder of Asiana Airlines and Korea Express. The transfer of Asiana Airline shares is considered to have been aimed at excluding the healthy company from corporate structural adjustments in the workout process.
Korea Development Bank estimated that a PEF to acquire Daewoo Engineering & Construction would be decided in about a month. The bank is planning to conduct a very strong restructuring process for Kumho Industrial Co. and Kumho Tires companies to ensure the process is as short as possible. Strong measures for structural adjustments are being taken, including the reduction and remuneration of employees, one month unpaid vacation for all employees, sales of assets to earn fluidity of 1.3 trillion won. In addition, 40% of the group’s top executives will be removed in order to promote a slimming down in terms of labor.