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(4th LD) Kumho Asiana's two units to be put under debt workout

All Headlines 18:26 December 30, 2009

(ATTN: TRIMS lead; UPDATES with more details throughout)

SEOUL, Dec. 30 (Yonhap) -- Creditor banks of South Korea's cash-strapped Kumho Asiana Group will seek to put the group's two units under a debt rescheduling program to help it ease a liquidity squeeze, the main creditor Korea Development Bank (KDB) and the group said Wednesday.

Earlier, Kumho Asiana asked its creditors to place Kumho Industrial Co. and Kumho Tire Co. under the debt workout scheme to help it ease a worsening cash shortage sparked by the delayed sale of the group's construction unit, Daewoo Engineering & Construction Co.

KDB said a private equity fund led by the lender plans to buy a 50 percent stake plus one share in the troubled builder for 18,000 won (US$15.5) per share in an effort to accelerate the business normalization of the group.

"The move aims to preemptively stem a liquidity crisis that the failure in the sale of Daewoo Engineering could bring to the group and ease market jitters," KDB said in a statement.

Meanwhile, creditor banks plan to allow two other Kumho Group units -- Korea Kumho Petrochemical Co. and Asiana Airlines Inc. -- more time for debt repayment in return for the affiliates' pledges to restructure themselves.

Kumho Asiana said the family that owns the group will give authority to creditors to dispose of its own assets, including its stakes in affiliates, to help improve the conglomerate's financial health and shoulder responsibility in exchange for maintaining its managerial rights over the group.

The sale of the group's other units was also decided. KDB's fund plans to acquire Kumho Life Insurance Co. jointly with Consus Asset Management Co., a local asset manager. The group's car rental unit, Kumho Rent-a-Car Co. will be sold to a consortium of KT Corp. and local private equity fund MBK Partners Ltd. for 300 billion won.

Shares of Kumho Asiana Group lost ground, hit by its liquidity concerns. Shares of Kumho Industrial tumbled by the daily limit of 15 percent to 8,330 won, and Kumho Tire also plunged 15 percent to 3,605 won.

Although Kumho Asiana picked two foreign funds -- Jabez Partners and TR America Consortium -- as preferred bidders for Daewoo Engineering in mid November, the sale has been stalled as they have faced difficulties in securing enough funds to buy the builder.

Kumho Asiana has been riddled with debt concerns after it bought a 72.1 percent stake in Daewoo Engineering in 2006 for 6.24 trillion won.

The group promised financial investors that it would buy back their shares if share prices of Daewoo Engineering fell below 31,500 won in return for 3.5 trillion won in financial support. The builder's share prices rose 0.39 percent to close at 12,800 won.

The financial watchdog said the debt restructuring of the group's two affiliates would have a limited impact on financial firms' health and the markets.

According to the Financial Services Commission (FSC), local financial firms loaned a combined 15.7 trillion won to Kumho Asiana.

"Korean financial firms may have to put aside about 1.7 trillion won in additional loan-loss reserves, but given the size of local banks' net profit, they can handle it," the FSC said in a statement.

The watchdog said local banks might set aside 1.2 trillion won in reserves, which could bring down their capital adequacy ratio by 0.1 percentage point.

"As the restructuring plan has been laid out, uncertainty (surrounding Kumho's business) in the market is forecast to be considerably dispelled," the regulator said, adding that the FSC plans to beef up its monitoring of the financial markets and banks that have large exposure to the group.

Experts say that the impact of the debt workout on the market would be limited, mainly because the move has been widely anticipated.

"As Kumho came to reduce its debt burdens (due to the restructuring), it could be seen as positive news in the long term," said Park Sang-soo at LG Economic Research Institute.


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