Dongbu Group gets ultimatum

Chairman Kim pressed to speed up restructuring

Dongbu Group Chairman Kim Jun-ki has received a virtual ultimatum from financial regulators to carry out the group’s self-restructuring actions promptly.

The Financial Supervisory Service (FSS) and creditor banks criticized Kim’s reluctance in selling the group’s key affiliates, warning that Dongbu may collapse like the STX and Tongyang groups if Kim focuses on maintaining his managerial control.

After STX and Tongyang went under last year due to liquidity shortages, market rumors had it that Dongbu would be the next as the group had been in financial trouble.

To ease market concerns, Kim announced a set of restructuring plans in November, including sales of key affiliates and core assets. The market recognized the chairman’s determination, and creditor banks have offered 1 trillion won in fresh funds to support the plans.

However, financial authorities and creditor banks now are skeptical of that determination, as the plans are delayed and the group is not following the directions of the main creditor bank, Korea Development Bank (KDB).

FSS Senior Deputy Governor Cho Young-je recently summoned executives of Dongbu Steel and Dongbu Corp. and urged them to speed up the self-rescue plans, according to FSS officials.

It was the second time the FSS has summoned Dongbu executives following the first in February. Such a summons is very rare.

“Dongbu announced self-restructuring plans and the time by when it would sell its assets,” FSS official Lee Sung-jae said. “After the announcement, the KDB and other creditors have helped the group pay back maturing corporate bonds to support the restructuring.”

He said the plans have not been carried out as scheduled.

“Investors are buying the group’s bonds based on the restructuring promise. The FSS and the KDB need to check the restructuring progress because if the promises are not kept, it will have negative impact on the market. So we called for more rapid actions,” Lee said.

Before the summons, creditors held a meeting Thursday and expressed discontent over the slow progress.

Officials of the KDB said the bank is considering suspending offering fresh funds to Dongbu and urging it to repay loans if the group keeps delaying selling its affiliates.

“We understand that Kim wants to retain his ownership of the group, which he has built for years,” a KDB official said.

“But it is not right to delay the restructuring. Kim said he would follow the creditors’ direction in affiliate sales, but is not doing so,” he said.

Last month, the KDB told Dongbu to sell Dongbu Steel’s factory in Incheon and Dongbu Power Dangjin Corp. as a package to POSCO. It plans to buy a 70-80 percent of stake in the package and have POSCO hold the rest, with the latter taking charge of management. POSCO said it would consider the offer.

However, Dongbu said it wanted to invite other bidders because in that way it would be able to sell the assets for a higher price than selling to a single bidder like POSCO.

“When a group sells its affiliates or assets for restructuring, it is almost impossible to receive as much price as it wants because the sales have to be made urgently,” the KDB official said.

“If Kim hesitates to sell the units, Dongbu’s liquidity trouble will become more serious and the group may follow the fate of STX or Tongyang. STX Chairman Kang Duk-soo and Tongyang Chairman Hyun Jae-hyun lost the groups as they hesitated to sell their key assets.”

Dongbu said earlier it would raise 3 trillion won through its self-rescue plans, selling core assets and streamlining its business units. It said Kim would invest 100 billion won of his money to raise capital.

However, the group has sold only one affiliate so far, and Kim has not invested his money. By Kim Rahn, The Korea Times