Going to Court Receivership?: Creditors Reject Self-Help Plan for Kumho Tire Submitted by Chairman Park | BusinessKorea

Saturday, September 23, 2017

Creditors of Kumho Tire rejected the self-rescue plan submitted by Kumho Asiana Group chairman Park Sam-koo on September 12.
Creditors of Kumho Tire rejected the self-rescue plan submitted by Kumho Asiana Group chairman Park Sam-koo on September 12.
SEOUL,KOREA
13 September 2017 - 5:15pm
Jung Min-hee

Kumho Asiana Group chairman Park Sam-koo submitted a self-rescue plan to take over Kumho Tires at 200 billion won (US$180 million) on September 12 but creditors rejected the plan, believing that the plan had some problems.

According to the financial industry and the tire industry on September 13, Lee Han-seop, president of Kumho Tire, visited Korea Development Bank (KDB)'s head office and submitted the self-help plan costing Kumho Tire about 700 billion won (US$630 million). The company said it will sell its stake in the Chinese plant at 350 billion won (US$315 million) to 400 billion won (US$360 million), issuing 200 billion won (US$180 million) worth of new shares, selling off its 4.4-percent stake amounting to 130 billion won in Daewoo E&C, restructurings and the return of wages. "We submitted our plan according to guidelines set by the KDB," Kumho Tire said.

But controversy is expected to brew as chairman Park said that he will virtually take over Kumho Tire at a bargain price without bearing any responsibility for his management failure for seven years since 2010. If Kumho Tire issues new shares of 200 billion won (US$180 million) for a capital increase with consideration, chairman Park will hold a 20% stake. Then, chairman Park will become the largest shareholder, relegating creditors, making it difficult to sell off the tire company again.

The self-rescue plan excluded blue-collar workers who have been against the overseas sell-off of Kumho Tire from a restructuring list, which puts the self-rescue plan into question. Kumho Tire said that returning wages and restructurings will apply white-collar workers and executives only. The average labor cost per blue-collar worker at Kumho Tire is 82 million won (US$73,000) which is the highest in the domestic tire industry, but the union went on a strike several times, demanding a raise in wages several times.

It is pointed out that the plan to sell off a factory in China is far from being down to earth. Kumho Tire's Chinese factory is suffering massive losses and it is a big challenge to find the new owner of the factory. Even if the factory is sold off, it will be difficult to pay off debt (about 770 billion won or US$693 million) owed by the Chinese factory.

Creditors that already rejected the self-help plan will receive a revised self-rescue plan and decide whether to accept it by resuming a stockholders council meeting by next week. At the end of this month, 1.3 trillion won (US$1.17 billion) worth of bonds will mature at the head office and 40 billion won (US$36 million) worth of bonds at Kumho Tire’s Chinese corporation. If both parties fail to reach an agreement, creditors may dismiss Park and take the tire company into a workout or court receivership.

On the other hand, chairman Park clarified his position to creditors, saying that he will abandon his preferential rights to acquire shares if the sell-off of the Chinese factory and a capital increase of 200 billion won (US$180 million) with consideration in the self-help plan fail on September 12. As chairman Park burned his boats for the revival of Kumho Tire, a lot of attention is being paid to how creditors will respond to the chairman’s proposal. Meanwhile, creditors have been giving negative views on the capital increase through an affiliate of the Kumho Asiana Group, saying it a kind of holdout.

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