‘Salaried men’s legends’ can’t transcend economic reality

Kang Duk-soo and Yoon Seok-keum

The success stories of salaried workers who became owners of major conglomerates are starting to crumble under the weight of domestic and global economic malaise that has been eating into their businesses. STX Group’s Chairman Kang Duk-soo is the latest name on the list.

STX Group’s flagship STX Offshore & Shipbuilding is the world’s fourth-largest shipbuilder.

However, the affiliate on Tuesday sought a voluntary corporate restructuring agreement to improve its finances that have been sapped by a severe credit crunch. STX Group last week failed to secure financing to repay maturing debts when its second-largest affiliate, STX Pan Ocean, attracted no bid from investors interested in buying the 35.9 percent stake. STX Offshore & Shipbuilding suffered a net loss of 782 billion won ($700.3 million) last year and posted an operating loss of 403.4 billion won.

According to market observers, STX Group has borrowed a total of 12 trillion won in bank loans and about 1 trillion won of that debt will mature this year. STX Group has suffered a liquidity crunch as orders for new ships plunged significantly due to the sector’s prolonged downturn since the 2008 financial crisis.

“When Korea Development Bank, the main creditor of STX Offshore & Shipbuilding, accepts the debt restructuring agreement, we expect creditors will roll over maturing debts for a year and give us some financial support,” said an official at STX Offshore & Shipbuilding. “In the meantime, we will also continue selling our assets to shore up the company’s fiscal health.”

Korea Development Bank, Export-Import Bank of Korea, NH Nonghyup Bank, Woori Bank and Shinhan Bank sat down for talks Tuesday on STX Offshore & Shipbuilding’s request for voluntary restructuring agreement.

“The decision could be reached as soon as this week as the main creditor, Korea Development Bank, has asked other creditors to notify it of their decision in writing by Friday,” said a source familiar with the matter.

A voluntary restructuring plan is not legally binding, unlike a court-led debt restructuring plan. It is technically regarded in business circles as a low-degree workout program because creditors will have supervision authority. Six months after the court receivership of the Woongjin Group, market observers said, “the salaried men’s legend” has been tested again by STX Offshore & Shipbuilding’s situation.

STX Group Chairman Kang is one of the most talked-about “legends,” along with Yoon Seok-keum, founder of Woongjin Group, which has been under a court-restructuring plan since September.

Kang, 63, built the country’s 14th-largest conglomerate after his 2001 takeover of engine maker Ssangyong Heavy Industries, where he was chief finance officer, by putting up all his personal wealth of 2 billion won. Since then, the mid-sized STX Group spread its wings worldwide by buying Daedong Shipbuilding (now STX Offshore & Shipbuilding) in 2001, Korea Industrial Complex Corporation in 2002 (renamed as STX Energy) and Bumyang Bulk Carriers (now STX Pan Ocean) in 2004.

In a surprise move, Kang showed himself to be a master of M&A again in 2007, when STX Group bought a controlling stake in Norway’s Aker Yards for 560 million euros to cement its position in the European shipbuilding market.

STX Group, which was founded with a petite 2 billion won in 2001, posted over 20 trillion won in revenue and 30 trillion won in assets in 2009.

But the conglomerate entered a turbulent time as the sector was hit by weak global demand triggered by global economic slowdown, and STX Group has been struggling to improve its affiliates’ financial structure.

It sold off its 50.75 percent of stakes in STX OSV, the world’s biggest maker of offshore support vessels in Europe, to Italian government-owned shipbuilder Fincantieri in December for 768 billion won. It also sold a 43.1 percent stake in STX Energy to Orix Corporation in Japan for some 360 billion won.

Market observers said Kang’s case resembles that of Woongjin Group chairman Yoon, who is also held in high regard by salaried workers in Korea.

Yoon established a small publishing company called Haein International (since renamed as Woongjin Think Big) using seed money of just 70 million won and managed to grow it into the nation’s 31st-largest conglomerate.

Pundits say Woongjin is believed to the only conglomerate to grow so big among start-ups founded in the 1980s, but it entered a court restructuring plan after trying to expand too aggressively in the construction, solar energy and finance sectors.

In January, Woongjin’s creditors and management capped a protracted set of negotiations by agreeing to put Woongjin Chemical, Woongjin Foods and Woongjin Passone - three affiliates of the medium-sized conglomerate - up for sale.

The decision left Yoon, the 68-year-old entrepreneur, with a handful of publishing affiliates, including Woongjin Think Big, which makes study aid books.

The group had already sold off its main cash cow affiliate, Woongjin Coway, the nation’s No. 1 water purifier manufacturer, to MBK Partners, a private equity fund manager.

While shares of creditor banks related to STX affiliates plunged, analysts gave a positive outlook for STX Group.

“Shares of STX Group’s five affiliates dropped and this is a good chance for investors to buy on the dips given that STX Offshore & Shipbuilding’s seeking a voluntary debt restructuring agreement has eased concern that the conglomerate’s credit risk may spread to overall market,” said Park Seok-hyun, an analyst at KTB Securities.

“Given that STX Offshore & Shipbuilding has backlog orders worth $15.9 billion, it will be able to normalize its management without difficulties if it sincerely fulfils its voluntary debt-restructuring agreement,” said Park Mu-hyeon, an analyst at E-Trade Securities.

By Kim Mi-ju [mijukim@joongang.co.kr]