What is Taeyoung Construction's 'Workout' Procedure? ... Eyes on Korea Development Bank and Creditors

The Lead Creditor Bank ShinEop Bank Takes Over
First Creditors' Meeting on January 11
Procedures Remaining: Asset-Liability Audit, Corporate Improvement Plan Establishment, and Agreement

On the 28th, Taeyoung Construction, which is experiencing a liquidity crisis due to real estate project financing (PF), applied for a workout (corporate restructuring). The photo shows the entrance of Taeyoung Construction headquarters in Yeongdeungpo-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Mid-sized construction company Taeyoung Construction has applied for a workout (corporate restructuring) after failing to overcome the critical debt maturity hurdle despite all-around self-help efforts, drawing attention to the Korea Development Bank's (KDB) actions after taking over the baton. Since several procedures remain, including asset and liability due diligence and corporate improvement plan implementation agreements involving financial creditors' meetings before the workout commencement, a number of twists and turns are expected.

On the 28th, financial authorities held an unscheduled response meeting regarding Taeyoung Construction's workout application, led by Financial Services Commission Chairman Kim Ju-hyun and including the Financial Supervisory Service and KDB. They announced countermeasures aimed at minimizing the shock to the financial market, focusing on replacing, restructuring, or selling the project financing (PF) construction sites where normal progress is difficult, and protective measures for sales contract holders through the Housing and Urban Guarantee Corporation (HUG) sales guarantee.

Going forward, the specific workout procedures will be handled by the main creditor bank, KDB, according to the Corporate Restructuring Promotion Act promulgated on the 26th. KDB, as the main creditor bank, holds 200.2 billion KRW, including 129.2 billion KRW in PF loans and 71 billion KRW in short-term borrowings. Following that, Kookmin Bank and Industrial Bank of Korea have lent 160 billion KRW and 99.7 billion KRW respectively. Woori Bank and Shinhan Bank have each provided loans of 72 billion KRW and 63.6 billion KRW. Hana Bank has also lent 61.9 billion KRW, including PF loans.

After Taeyoung Construction's workout application, KDB held an emergency meeting with the Financial Services Commission and Financial Supervisory Service and notified the convening of the first creditors' meeting. Accordingly, the creditors' exercise of claims against Taeyoung Construction is suspended until the conclusion of the meeting.

The first creditors' meeting is scheduled for January 11 next year. The agenda is expected to include the composition of the meeting, the commencement of joint management procedures, whether to suspend the exercise of claims and the suspension period, and management standards for PF sites. These agenda items will be resolved with at least 75% approval based on credit exposure, and after resolution, the exercise of claims may be suspended for up to four months.

A normalization plan for Taeyoung Construction is necessary to decide whether to commence the workout, but prospects are not promising. Considering that Taeyoung Construction ultimately applied for a workout despite all-around efforts such as selling core assets to raise cash to defer debt, high-intensity self-help measures, including the scale of the major shareholder's personal fund contributions, are expected to be key in the subsequent procedures.

Korea Ratings downgraded Taeyoung Construction's unsecured bond credit rating from A- (under review for downgrade) to CCC (under review for downgrade) on the same day, stating, "We plan to reflect the commencement and progress of the workout and the level of credit impairment in the credit rating." If the workout process does not proceed smoothly, market evaluations are likely to become more negative.

If the agenda passes at the first creditors' meeting, the process will enter the stage of asset and liability due diligence and drafting a corporate improvement plan for Taeyoung Construction. The corporate improvement plan, developed over up to four months, typically includes measures for handling PF sites, financial structure improvement plans, liquidity procurement plans, and company management and governance plans. KDB plans to hold multiple meetings as needed to discuss current issues and resolve handling measures.

If the corporate improvement plan is established as scheduled, the acceptance of the plan will be decided at the second creditors' meeting tentatively scheduled for around April 11 next year. It is a principle to resolve within three months from the workout commencement date, with a one-time extension allowed. The execution of the implementation agreement between Taeyoung Construction and the creditors is likely to occur within one month from the second resolution date, around May 11.

Financial Services Commission Chairman Kim Ju-hyun explained, "We will actively support funds while calming anxiety and implement effective measures such as improving the business viability of PF sites themselves," adding, "Although there are global economic issues, if interest rates and macroeconomic conditions improve, I think a soft landing as envisioned will be possible."