Woongjin struggling to stay afloat

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Woongjin struggling to stay afloat

After Woongjin Holdings and its affiliate filed for a court restructuring program yesterday, its CEO Shin Gwang-soo shed tears while apologizing for creating turmoil in the market at the company’s headquarters in Seoul.

“As the CEO of the company, I will make the utmost effort to resolve the problems caused by Kukdong Engineering & Construction,” Shin said, referring to the parent group’s construction arm, which also sought court receivership at the Seoul Central District Court on the same day.

“Woongjin is a company that started from scratch,” Shin added. “Please help us survive.”

Kukdong E&C was supposed to pay 15 billion won ($13.43 million) it owed Hyundai Swiss Savings Bank on Tuesday. However, after failing to do so, Woongjin Holdings, which reportedly has a 420 billion won guarantee obligation on Kukdong E&C borrowings, has decided to jointly seek the court’s debt restructuring assistance. This is seen as a pre-emptive move against a possible chain reaction of bankruptcy which could put the entire group at risk.

In the face of a court restructuring program, all financial transactions of the construction and holding company have been placed on hold.

Kukdong E&C has become a thorn in the side for Woongjin Group, which bought the construction firm for 660 billion won in 2007 and has since spent roughly 440 billion won normalizing its operations.

However, the global credit crunch in late 2008 and Korea’s frozen real estate market have only made matters worse for the company. Kukdong E&C reported a 216 billion won operating loss in 2011.

This fell to minus 6.8 billion won in the first half of this year after the government took steps to revive the construction industry and its holding company borrowed short-term debt of more than 200 billion won to keep the company afloat. Despite these moves, however, Kukdong E&C was under pressure to repay 110 billion won of debt this month alone.

Risk of spilling over

With all financial transactions of the two companies frozen, the stock values of their main creditor banks have plummeted. The share of Woori Bank, Korea’s second-largest lender and Woongjin Holdings’ main creditor, fell nearly 3 percent yesterday. The holding company owes over 125 billion won to Woori, 70 billion won to Hana Bank and 14.9 billion won to Shinhan Bank, among other unpaid debts.

Shinhan Bank, the main creditor of Kukdong E&C, saw its stock price retreat early yesterday before recovering in the afternoon to close 0.8 percent higher than the previous trade.

The construction company owes Shinhan Bank 52 billion won.

“The main creditors’ performances will inevitably take a hit as they have to stack up their provisions to cover the bad debts,” said Seo Young-soo, an analyst at Kiwoom Securities. The debts of the two companies have been growing at an alarming rate in recent years.

Woongjin Holdings owed 2.3 trillion won at the end of 2010 but this jumped to 3.3 trillion won as of this June, while Kukdong E&C’s debt grew from 635.9 billion won to 1.76 trillion won over the same period. As a result, Woongjin Holdings debt-to-asset ratio expanded from 216.1 percent at the end of 2010 to 374.2 percent as of end of June, while Kukdong’s ratio doubled from 173.6 percent to 376.1 percent.

If all the affiliates’ outstanding borrowing is tallied, the debt currently exceeds 9 trillion won.

Rocky road

Woongjin Group, the nation’s 32nd-largest conglomerate has also been struggling in recent years due to a tightening liquidity crunch. Its solar energy business has also been dwindling due to the global slowdown and increased competition from cheaper Chinese rivals.

Since 2006 the group has been trying to reposition solar energy as a new growth engine through two of its affiliates, Woongjin Polysilicon and Woongjin Energy. But they have both been saddled with deficits due to low demand and falling polysilicon prices.

The group tried to stop the rot by selling off stakes in one of its main businesses, Woongjin Coway, which deals in water purifiers. MBK Partners, a local private equity fund, was supposed to buy a 30.9 percent stake for 1.2 trillion won. But as they have yet to narrow their differences on whether the payment should be made today or after the Chuseok harvest holiday, which ends on Wednesday, the deal is widely seen as being dead in the water.

The group was founded by Yoon Seok-keum, a door-to-door salesman who sold Encyclopedia Britannica before reinventing himself as a successful entrepreneur in a classic rags-to-riches tales. He launched his own company with just seven employees and 70 million won in capital in 1980. The group began life publishing books and selling educational materials. However, since the late 1980s, it has expanded aggressively into a wealth of areas including health food products and cosmetics.

By Lee Ho-jeong [ojlee82@joongang.co.kr]

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