Kumho Tire at rock bottom as rumors fly

The share price of Kumho Tire dipped drastically in the past couple of days after a rumor broke out that the company will soon go into court receivership.

The price of the beleaguered tire company’s stock, which reached as high as 7,180 won ($6.53) on Tuesday while in session before closing at 7,000 won, tanked on Thursday and closed at 4,830 won per share. On Friday, the price dipped to a record low at 3,385 won.

The sudden decline was sparked by a rumor on Thursday that the tire company may soon fall under a government-run restructuring program called “pre-packaged plan,” also known as p-plan.

P-plan is a short-term restructuring initiative that is a mixture of court receivership and a debt workout plan set up jointly by the country’s top financial regulator and creditors. The entire process comes to an end in just three months, during which the court freezes the company’s stocks and bonds. It’s a relatively new concept in Korea, introduced in Aug. 2016.

Kumho Tire, which has been in the red for the past couple of years, seemed to be improving earlier this year when Doublestar, a Chinese tiremaker, was chosen by creditors led by state-run Korea Development Bank as the preferred bidder to purchase the company. The share price on Jan. 18, when Doublestar became the preferred bidder, closed at 8,930 won.

Doublestar offered to pay 955 billion won for the company, about 60 percent higher than the market value at the time. But the negotiation dragged on due to a power struggle between Park Sam-koo, the chairman of Kumho Asiana Group who had the right of first refusal, and creditors over issues such as the trademark fee. Doublestar requested creditors slash the price of the company, citing delays in negotiations and the operating loss.

The deal was eventually terminated on Sept. 5 and after creditors turned down a self-rescue plan submitted by Park, they took control of the company on Sept. 26. In the span of 21 days, the company’s stock went from 6,580 won to 5,280 won. The stock price somewhat recovered in November before the recent rumor cut it by nearly 30 percent in a single day on Thursday.

“Up until now, [investors thought] the main issue was with the sales of the company,” said Yoo Seung-chang, an analyst from KB Securities. “But the company’s poor financial condition was highlighted this time around due to the rumor.”

The impetus behind the rumor was the financial crunch the company is in.

Kumho Tire completed a previous workout program in 2010 but its balance sheet started to show that the company may be in crisis once again.

The company posted 67.5 billion won in net loss in 2015 and 37.9 billion won in 2016. Its operating profit, however, still remained positive during that period. But this year, the company registered 50.9 billion won in operating loss from January to September and its net loss came to 59.9 billion won.

The tiremaker’s recorded assets as of the third quarter this year was around 3 trillion won. But the total amount of debt, including corporate bonds set to mature within a year, is about 2.81 trillion won. Its cashable assets are less than 100 billion won.

“Due to the excessive debt, the burden of interest on Kumho Tire continues,” said Ryu Yeon-hwa, a researcher from Hanwha Investment and Securities in a recent report. “Given the high interest, the company is likely to be in a difficult situation for a while.”

The company’s share price refused to recover from the drastic fall despite the company and its creditors rejecting the rumor, saying that a decision has not yet been made.

Korea Development Bank reportedly explained that the field inspection on the company, which started in October, is yet to be concluded.

BY CHOI HYUNG-JO, CHO HYUN-SOOK [choi.hyungjo@joongang.co.kr]