Embattled Taeyoung pressed to improve restructuring plan

Taeyoung Engineering & Construction (E&C)'s headquarters in Yeouido, western Seoul [YONHAP]

Financial authorities, the presidential office and the state-run bank pressed TY Holdings, the parent company of the indebted Taeyoung Engineering & Construction (E&C), to inject the outstanding 89 billion won ($67.6 million) from the sale of Taeyoung Industries into the construction arm as a part of the group's restructuring plan.

The Korea Development Bank (KDB), the main creditor of the distressed builder that applied for a debt workout program last week, warned Friday that if fundamental conditions are not met, "Taeyoung E&C won't be able to initiate the workout."

State-run KDB stressed that if the workout falls through, the responsibility for all economic losses and the breakdown of social trust will fall on the Taeyoung Group.

KDB brought together Taeyoung E&C's major creditors on Friday to discuss restructuring ahead of the first creditors' meeting on Jan. 11, when the final decision for the workout initiation will be determined. This meeting was not originally part of the workout procedure but was reconvened as the implementation of Taeyoung's proposed recovery plan, presented at a briefing session for over 400 creditors two days ago, was deemed insufficient.

The specific concern is utilizing the 89 billion won from the sale of Taeyoung Industries.

With the ever-present possibility that the construction company's workout plan may fail, the Financial Services Commission and the Financial Supervisory Service will set up a meeting on Monday to inspect real estate project financing (PF) loans to calm worries that Taeyoung's crisis might affect other companies.

Earlier, TY Holdings, the parent company of Taeyoung Group, had committed to assisting Taeyoung E&C with 154.9 billion won from the sale of its lucrative subsidiary Taeyoung Industries, as per the agreement with the KDB.

However, out of the obtained funds, 89 billion won was directed towards repaying TY Holdings' joint surety debt.

While Taeyoung contends that this amount is also a form of support for the troubled builder, creditors accused Taeyoung Group of distorting the use of funds potentially "to retain control over management" instead of assisting Taeyoung E&C.

"This raises concerns about a lack of understanding of the basic principles and procedures of the workout," the creditors said.

Financial authorities are pressing Taeyoung E&C to present additional concrete recovery plans by the weekend. Failure to gain acceptance of Taeyoung E&C's workout application may lead to court receivership or liquidation proceedings.

Taeyoung E&C's workout application, prompted by a liquidity shortage due to real estate project financing (PF) loans, has raised fears of repercussions for fellow construction companies in Korea with high exposure to real estate PF loans.

On Thursday, Hi Investment & Securities warned that Dongbu Corporation and Shinsegae E&C face potential liquidity shortages, while Hana Securities warned that Lotte E&C faces a similar danger.

Construction companies labeled the "next Taeyoung" are trying to reassure the market.

"We secured a liquidity of 300 billion won in the fourth quarter of last year to maintain financial stability," Dongbu Corporation said in a press release issued Friday.

"We proactively secured approximately 300 billion won through overseas construction payments, collections from completed sites, and loan recoveries in the fourth quarter of last year, dispelling any concerns."

Lotte E&C also addressed the situation in a separate press release on the previous day.

"We have reduced our PF contingent liabilities of around 1.6 trillion won and decreased the debt ratio by over 30 percent," the company said.

"With our local construction sites, including Haeundae Centum, being located in downtown areas with high marketability, we believe there will be no issues with property sales," it added.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]