Winner’s curse?

Woongjin Group Chairman Yoon Seok-geum

Can Woongjin chairman save troubled group?

With Woongjin Holdings applying for court receivership, Wednesday, attention is being paid to how Woongjin Group Chairman Yoon Seok-keum will weather the biggest crisis of his business career.

It seems that there are few options for the chairman. Given that he decided to put the holding company under court control, his top priority is seemingly placed on preventing the disintegration of the mid-tier conglomerate.

“It seems to be an inevitable choice to save the group,” Yi Dong-sub, analyst at SK Securities, said. “It may seem like he has ditched some affiliates in the end, though.”

Debt-ridden Kukdong as well as Woongjin Holdings can pose a serious problem to the entire group, and court receivership is a desperate effort to prevent a domino effect, he said.

On Wednesday, Yoon met with CEOs of the group’s affiliates and said, “I tried hard to revive Kukdong and Woongjin Coway but it has ended fruitlessly. I am sorry.”

According to industry insiders, Kukdong has long suffered a liquidity shortage. It has paid 11.4 billion won to KB Kookmin Bank since Sept. 13 in interest on overdue loans prior the bankruptcy declaration. The construction firm also has to repay debt of 100 billion won this week

Kukdong’s snowballing loans has put Woongjin Holdings in trouble as it stood as a joint surety on them.

If Woongjin Holdings had not filed for court receivership with Kukdong, it would have been required to immediately repay the latter’s due debt. If it had failed to do so, the holding group’s subsidiaries would have been provisionally seized.

Yoon has established one of the nation’s top 30 conglomerates, beginning as a salesman of Encyclopedia Britannica some 40 years ago but may see his kingdom break apart.

The cracks began to show when Kukdong Engineering and Construction went belly up after failing to honor commercial paper worth 15 billion won due Tuesday, and filed an application for court receivership Wednesday to undergo a court-managed workout program.

Woongjin Holdings also filed for court receivership with the Seoul Central District Court the same day, because it stood as joint surety for a 1 trillion won loan taken out by Kukdong but cannot afford to repay it.

The move came as the group decided not to provide them with financial support to help them survive the crisis.

Intensive restructuring

Under the current law, management can maintain control of a company while it is under court receivership, unless judges find its critical mistakes can damage the company.

As the government has temporarily implemented a fast-track initiative aimed at providing liquidity to small- and mid-sized companies until the end of next year, Woongjin Holdings can finish with court receivership within six months.

Experts expect that the group will carry out intensive restructuring to slim down.

“Woongjin Holdings has now received extra time to delay its debt payment and will try hard to minimize damage to the group,” said Kim Joon-sup, analyst at E-Trade Securities.

The holding company will soon put up its units up for auction to tackle a liquidity shortage, he said.

“The group will keep those with high earnings results while trying to sell those with high growth potential,” he said.

Woongjin Group has its roots in publishing but has been expanding its business scope in such fields as water purifier rentals, construction, energy and country clubs.

Witnessing the group collapsing fast, some market insiders said it fell victim to “the winner’s curse,” as it paid too much when acquiring Kukdong from Dallas-based private equity fund Lone Star in 2007. The medium-sized builder was first under court receivership from 1998 to 2003 before it was bought by Lone Star.

Subsidiaries up for auction

Before the bankruptcy declaration, Woongjin Holdings had successfully signed a deal to sell its cash-cow affiliate Woongjin Coway to MBK Partners. The private equity fund was selected to acquire a controlling stake in the nation’s largest water purifier and bidet manufacturer for 1.2 trillion won or 50,000 won per share last month.

But as its holding company has filed for court receivership, the completion of the deal is expected to be pending as the key decision for sales is handed over to the court.

As of last year, Woongjin Coway posted the group’s highest profits of 177.1 billion won, followed by educational publisher Woongjin Think Big with 21.2 billion won and Woongjin Energy at 21.6 billion won. But Woongjin Polysilicon and Woongjin Foods posted 10.7 billion won and 7 billion won deficits, respectively.

“Given the current conditions, Woongjin’s subsidiaries will be sold at discounted prices, and it will be unavoidable for the group to shrink in the end,” Yi said. <The Korea Times/Kim Tae-jong>

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