Workout Taeyoung Construction Begins 'Asset Due Diligence'... Procedure for Selecting Accounting Firm

Creditors Send RFP to Accounting Firms... Selection to Conclude This Week
Corporate Improvement Plans to Be Established by April 10
Includes PF Project Site Handling and Financial Structure Improvement Measures
Potential Conflicts Among Stakeholders Remain... PF Project Site Handling Also a Variable

On the 11th, the fate of Taeyoung Construction, which applied for a workout (corporate restructuring) after failing to repay real estate project financing (PF) loans worth about 9 trillion won, is being decided, creating tension at Taeyoung Construction in Yeongdeungpo-gu, Seoul. Photo by Jo Yongjun jun21@

The creditor group of Taeyoung Construction, which has initiated a workout (corporate financial restructuring), will select an accounting firm this week to begin a full-scale asset and liability audit and formulate a corporate improvement plan over a period of up to four months. The creditor group plans to send a Request for Proposal (RFP) to accounting firms this week to select the audit firm and complete the selection process.

According to the Taeyoung Construction creditor group and the accounting industry on the 15th, KDB Industrial Bank, the main creditor bank, began the procedure to select an audit firm on the 11th for the asset and liability audit of Taeyoung Construction, which was decided to enter workout. The selected accounting firm will analyze Taeyoung Construction’s assets and liabilities within a maximum of four months and assess its viability.

The audit and formulation of the corporate improvement plan for Taeyoung Construction will be conducted over three months until April 10, in accordance with the Corporate Restructuring Promotion Act. The period can be extended by one month if there is a separate agreement. After the corporate improvement plan is established, the Industrial Bank plans to convene a second financial creditors' meeting to proceed with the resolution process.

The corporate improvement plan includes ▲ project financing (PF) site handling measures ▲ financial structure improvement plans ▲ liquidity procurement plans ▲ company management plans and management control measures. Once an implementation agreement containing Taeyoung Construction’s management goals and execution plans is signed within a month, the formal joint management process will begin around May to June.

Although Taeyoung Construction finally received workout approval from the creditor group after many twists and turns, the audit process is expected to be challenging. Some analysts even say this is one of the most complex workouts in the history of the domestic financial market in terms of stakeholder interests.

Currently, there is a significant discrepancy between the level of 'risky debt' estimated by Taeyoung Construction and the scale estimated by the creditor group, raising the possibility of conflicts among stakeholders. Yoon Se-young, the founding chairman of Taeyoung Group, claims that only 2.5 trillion KRW of the company’s guaranteed debt is 'contingent debt,' and considering the accumulated order volume and profitability over the next three years, there is no problem. On the other hand, the creditor group estimates Taeyoung Construction’s debt at a total of 16.3 trillion KRW, including 1.3 trillion KRW in direct debt, 5.5 trillion KRW in performance guarantee debt, and 9.5 trillion KRW in joint guarantee debt, and views that any of these debts could be classified as contingent debt.

Coordination among stakeholders for handling PF sites is also expected to face difficulties. The 60 PF sites in which Taeyoung Construction participates are expected to be classified through the audit process into categories such as normal progress, contractor replacement, or site sale. However, since stakeholders differ for each site, reaching an agreement is expected to be difficult. There is a high likelihood of ongoing disagreements between the creditor group led by the Industrial Bank and the major lenders who provided loans to the PF sites.

In response, financial authorities have decided to apply the 'Workout Construction Company Memorandum of Understanding (MOU) Guidelines,' enacted in 2012 and revised in 2014, to minimize conflicts among stakeholders. The main point is that direct funding shortages occurring around the start of the workout will be provided by the main creditor group, while necessary funds arising at PF sites will be shared by the PF lenders.

The Industrial Bank stated, "With the commencement of the workout, the PF lenders for each PF site will form a PF lenders' council and quickly prepare handling measures through consultations with Taeyoung Construction," adding, "We expect the PF lenders to review the handling measures for PF sites promptly and reasonably, and to facilitate the procurement and execution of necessary funds and the smooth progress of construction."

Taeyoung Construction, which is experiencing a liquidity crisis due to real estate project financing (PF), has applied for a workout. On the 5th, the construction site of Taeyoung Construction's Seongsu-dong development project located in Seongdong-gu, Seoul, has come to a halt. Photo by Jinhyung Kang aymsdream@