Creditors’ sale of Kumho Industrial imminent: sources

Kumho Asiana Group’s unit has undergone tough restructuring for more than 2 years


Creditors of Kumho Industrial Co. will soon finalize the takeover deal under which a consortium led by IBK Securities is set to acquire a large portion of Kumho Asiana Group’s transportation unit.

The imminent sale comes more than two years after Kumho Industrial was placed under joint-management by creditors including Woori Bank for business normalization in late 2009.

Both sides are likely to reach a final consensus “in the coming weeks,” according to industry sources.

Since last December, the creditors accelerated their stake sale by selecting IBK Securities, the brokerage unit of Industrial Bank of Korea, as the preferred bidder for Kumho Industrial.

The deal worth more than 900 billion won ($790 million) reportedly includes Kumho Industrial’s 100 percent stake in Kumho Buslines, 38.74 percent in Seoul Express Bus Terminal and 12.3 percent in Daewoo Engineering & Construction.

The IBK Securities-led consortium has conducted due diligence on the assets for more than two months.

Meanwhile, the creditors of Kumho Industrial agreed on a 690 billion won rescue package for the construction company last February.

The package deal includes 120 billion won to be provided by the creditors, a capital increase of 300 billion won by issuing new stocks and a 270 billion won debt-to-equity swap.

Group chairman Park Sam-koo informed the creditors of his intention to use his private funds for the capital increase of the financially embattled Kumho Industrial.

Park is estimated to secure a 14-percent stake by taking part in the capital increase.

The Kumho transportation unit posted major losses as it sold off Daewoo Engineering and Construction to the Korea Development Bank in 2010 at a lowered price, and paid 78.4 billion won in corporate taxes for dividing up its express bus division last year.

The company has reported the erosion of 79.6 percent of its equity capital in a regulatory filing.

The financial status of Kumho Asiana Group has deteriorated over the past few years after it bit off more than it could chew in lavish M&A deals.

Especially crippling was the absorption of Daewoo Engineering in 2006, in which the conglomerate agreed to pay 6.4 trillion won for a 72.1 percent stake in the builder. About half of the money came from a group of financial investors.

Due to its liquidity crisis, Kumho Asiana had attempted to raise emergency funds by selling its stakes in Daewoo Engineering.

However, the group struggled after facing a cash call worth around 4 trillion won from their investors, who exercised their right to sell their shares in the builder back to Kumho Asiana at above-market prices at the end of 2011.

In early 2010, creditors of Kumho Industrial and Kumho Tire agreed to begin a debt restructuring program of the troubled companies. More than three-quarters of the creditors endorsed the program.

Kumho Industrial has gone through an intensive debt resolution program by selling assets and reducing costs.

Some creditors had demanded the debt-saddled company retrieve its shares in Asiana Airlines from Korea Kumho Petrochemical.

In December 2009, Kumho Industrial sold some of its shares in Asiana Airlines to Korea Kumho Petrochemical at 4,275 won per share, just nine days before it requested a debt workout program in the face of a serious cash-shortage.

Creditors said Kumho Industrial’s sale of shares to Korea Kumho Petrochemical damaged the company’s corporate value.

The state-run Korea Development Bank, the main creditor of Korea Kumho Petrochemical, said, however, that it was impossible to return its new shares to Kumho Industrial and the issue has to be solved between Woori Bank and Kumho Industrial.

Kumho said it had sold 22.27 million shares, accounting for 12.7 percent of Asiana Airlines, to secure cash. Korea Kumho Petrochemical, the de facto holding company of Kumho Asiana, has become the largest shareholder of the air carrier by buying the shares.

The group suffered a severe liquidity crisis in the wake of its heavily leveraged purchase of Daewoo Engineering & Construction in 2006.

On Dec. 30, 2009, creditors of the group decided to put two of its units ― Kumho Industrial and Kumho Tire ― under a debt workout program to help the group overcome its liquidity crisis.

By Kim Yon-se (kys@heraldcorp.com)