Shaky firms pressed to speed up restructuring

By 정주원
  • Published : Feb 25, 2014 - 10:08
  • Updated : Feb 25, 2014 - 10:19

South Korea's financial watchdog is pressing financially weak conglomerates such as Dongbu Group to speed up their restructuring amid worsening liquidity conditions, industry sources said Tuesday.

According to the sources, the Financial Supervisory Service called in executives of Dongbu Group last week and told them to accelerate the conglomerate's self-rescue efforts to dispel market concerns over its financial health. 

"Although the group does not seem to face a great liquidity risk, we have urged it to address its liquidity problem," said an official at the FSS. 

  The conglomerate has been trying to restore its fiscal health under a contract with state-run Korea Development Bank, the main creditor, since 2003.

But recently, its cash flow further deteriorated amid economic slowdown. Dogged by worsening liquidity and pressure from financial authorities, Dongbu Group unveiled a plan late last year to sell stakes in its key two units -- Dongbu HiTek Co. and Dongbu Metal Co. -- by 2015, and also have its other affiliates sell assets to secure a combined 3 trillion won ($2.8 billion). The group aims to reduce its debt to 2.9 trillion won from 6.3 trillion won.

The watchdog's move comes as South Korea has seen a spate of unexpected defaults by major conglomerates since last year, with the latest default by Tong Yang Group rattling the local financial market and inflicting heavy losses on individual investors.

The FSS said more heavily-indebted firms may be placed under constant watch by their creditor banks, which can instruct the firms to take measures to reduce debts.

Last year, 43 debtor companies were included in the constant monitoring list.

Following bankruptcies, it became urgent for financial authorities to overhaul the corporate debtors since they faced criticism that the list doesn't reflect the companies' finances that entail potential and imminent risks.

Hyundai Group, another conglomerate with a liquidity problem, is also under mounting pressure to improve its financial status.

Last week, Hyundai Merchant Marine Co., the group's shipping unit, picked a local private equity fund as the preferred bidder to buy its LNG transportation business, a deal expected to fetch up to 1.1 trillion won. The group is aiming to raise 3.3 trillion won through a series of asset sales.

Meanwhile, Hanjin Group, one of South Korea's largest family-run conglomerates, is putting part of its assets on the selling block in order to tide over a credit crunch. 

Korean Air Lines Co., the group's mainstay unit, said early this year it will sell off assets worth 3.5 trillion won as part of efforts to improve its financial structure.

Hanjin Shipping Co., the country's No. 1 shipping line, is also stepping up efforts to improve its financial footing. The country's No.1 shipper suffered an operating loss of 242 billion won last year, widening from an operating loss of 197 billion won a year earlier. The shipping line has been incurring operating losses since 2011. (Yonhap)