KDB digs into Kumho

Kumho, South Korea’s ninth largest chaebol, which has run into severe liquidity trouble. Dongkok Steel Mill Co., Ltd, a local steel major, was said to be partnering with KDB on the deal.

One of the major causes of Kumho’s mounting debts is the conglomerate’s KRW4 trillion ($3.4 billion) package of loans from creditors, with KDB as the main lender, stemming from the company’s 72% acquisition of Daewoo Construction in 2006. Daewoo Engineering was previously owned by another chaebol, Daewoo Group, which collapsed during the Asian financial crisis between1997-98. The lenders’ deadline for repayment of much of the debt is mid-January, and Kumho has had to decide to sell off some of its assets to be able to make its payments to creditors.

KDB offer

Compared with the closing share price at Daewoo Engineering’s 2009 year end, KDB’s offer represents a 41% premium, despite the company’s share slide of nearly 40% since its acquisition. Kumho’s net debt stood at KRW21 trillion ($18.7 billion) as of September 30 last year.

KDB originally hoped to get back its capital through the planned sale last month of Daewoo Engineering to two preferred bidders, Abu Dhabi-based Jabez Partners and US construction company TR America. However, their offers were not enough to meet the debt repayments, forcing even more drastic restructuring. Nam Soo, Kumho Asiana’s president for strategic management, said publicly that the delay in the Daewoo Engineering sale caused liquidity to worsen, and therefore Kumho will carry out an aggressive restructuring of the whole group, alongside its creditors. 

Meanwhile, the group’s subsidiaries Kumho Tire and Kumho Industrial are also under a workout scheme. A detailed plan, including a debt restructuring program, capital decrease and debt-equity swap, is expected to be announced within two to three months, a local analyst told AVCJ, adding that in the case of Daewoo E&C, KDB may need to find more investors.

KDB may get Life

Separately, KDB will buy the conglomerate’s subsidiary Kumho Life Insurance in a partnership with local asset manager Consus Asset Management through a jointly-formed private equity fund. The alternative asset manager, established in 2004, signed the final deal to acquire a 52 % stake in Kumho Life Insurance in November last year, but the firm could not find sufficient capital. The joint fund was said about KRW78.9 billion ($70 million) raised from KDB and Consus. Kumho will also inject KRW48.8 billion ($43.5 million) and KRW30.1 billion ($26.8 million) through its group affiliates Kumho Petrochemical and Asiana Airlines respectively. The decision came after creditor banks agreed with Kumho Asiana to reschedule the debts of Kumho Tire Co. and Kumho Industrial Co., to help the group deal with its cash shortages.

Kumho said in a statement that the move will help accelerate its sale of the life insurer. Market-watchers estimated the value of the Kumho Life Insurance acquisition at KRW400 billion ($356.8 million). The private equity fund will raise further capital for the acquisition.

Kumho Asiana Group attempted to broaden its business scope through ambitious M&A and problematically structured fundraisings over the past few years. After the group purchased Daewoo Engineering through the huge leverage loan package, it even became more ambitious, buying a 60% stake in South Korea’s largest logistics company Korean Express, for $4.2 billion through its subsidiaries Daewoo Engineering and Asiana Airlines, resulting in even greater financial burdens on the struggling chaebol, which was controlled by sons of founder In-Cheon Park. After the revelation of its debts, the group’s management was reshuffled to replace them with business professionals, though some remain in senior positions.

Issues for the future

Now the issue is how to reduce the debt burden and restart Kumho on a healthy financial footing. Some local analysts told AVCJ that before buying any shares, buyers need to wait till the debt ratio recovers. As for outside investors, the company might present further opportunities for third parties such as financial institutions, including private equity players, to pick up assets t lower valuations. Another analyst said that Kumho Asiana would have to sell more assets to find capital.

MBK Partners for one has been involved In Kumho Asiana’s corporate restructuring, picking up Kumho Rent A Car, the country’s largest car leasing company with 23.7% market share in South Korea, in partnership with SK Telecom, the biggest mobile telephone operator for KRW300 billion ($267.6 million).
Earlier, Korea's Financial Supervisory Service (FSS) estimated that the country's financial institutions were exposed to KRW15.7 trillion ($14 billion) worth of Kumho Asiana debt, made up of KRW10.1 trillion ($9 billion) in loans, KRW1.2 trillion ($1 billion) in debt securities, and the rest in other instruments.

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• Topics
• Industrials
• North Asia
• Restructuring
• Financials
• Buyouts
• MBK Partners