Taeyoung Construction Major Shareholder Converts Entire 730 Billion KRW to Equity... Creditors Aim to Minimize Exposure

Taeyoung Construction's 'Corporate Improvement Plan' Outline... Capital Increase of About 1 Trillion Won
Major Shareholder's 100-to-1 Free Capital Reduction... After Conversion to Equity, Stake Rises to About 60%
"Active Self-Rescue Plan Facilitates Smooth Improvement Plan Negotiations" Evaluation
Due Diligence Firm Suggests 'Auction or Public Sale' for 10 out of 60 PF Sites
Creditors' Meeting Scheduled for the 18th... Resolution Targeted by April

[Image source=Yonhap News]

The main points of Taeyoung Construction's corporate improvement plan, confirmed through the main creditor committee, are to maintain the status of existing major shareholders such as the holding company TY Holdings through a full debt-to-equity swap and to minimize the creditors' debt-to-equity conversion. The major shareholder's self-help efforts are evaluated to have had a positive impact on persuading stakeholders and establishing the improvement plan. However, it is reported that the accounting firm responsible for the asset and liability audit of Taeyoung Construction has recommended liquidation through auction procedures for about 10 out of 60 real estate project financing (PF) sites where construction has been completed, raising interest in whether more than 75% approval from the creditors can be obtained.

According to the draft corporate improvement plan presented on the 17th by KDB Industrial Bank, the main creditor bank of Taeyoung Construction, the major shareholder's stake (41.8%) will be reduced to around 400 million KRW through a 100-to-1 free capital reduction, then increased to about 60% through a 730 billion KRW debt-to-equity swap. Taeyoung Construction is currently in a state of complete capital erosion (-635.6 billion KRW), and its stock trading has been suspended on the KOSPI market.

On the previous day, the Industrial Bank held an operations committee meeting with 18 creditor financial institutions and proposed a differentiated capital reduction for major and minority shareholders (2-to-1 reduction for minority shareholders) and a debt-to-equity conversion plan worth about 1 trillion KRW. The plan involves converting all 730 billion KRW of loan claims held by TY Holdings, the holding company of Taeyoung Construction, into equity, and converting about 50% (around 300 billion KRW) of the unsecured bonds held by the creditors into equity.

If TY Holdings converts the 400 billion KRW loan it provided to Taeyoung Construction from the private equity fund Kohlberg Kravis Roberts (KKR) before and after the workout, along with an additional 330 billion KRW loan from the sale of Taeyoung Industry, Blue One, SBS Medianet, and others, into shares, it is expected to secure about 60% of the total shares. A creditor representative explained, "Once the loss amount on PF guarantee liabilities is confirmed, the holding company's share ratio will increase to around 60% accordingly."

However, under the joint management procedure, the major shareholder must delegate management rights and voting rights during the workout (corporate financial restructuring) period, so they cannot exercise actual management control. If the ongoing workout fails to proceed as planned and is concluded as a failure, the creditors will dispose of the shares to recover the debt; if the workout succeeds, the collateral will be released, restoring Taeyoung's voting rights.

The creditors have effectively chosen to minimize the debt-to-equity conversion ratio. They plan to convert only 50% of the total unsecured bonds into equity and retain the rest as bonds. From the creditors' perspective, holding bonds is more advantageous for fund recovery than holding equity. They judged that increasing the proportion of bonds to recover principal and interest reduces uncertainty compared to resuming stock trading, seeing a rise in stock price, and recovering investment through share sales.

Accordingly, an Industrial Bank official explained, "The major shareholder is investing all held claims into capital expansion to fulfill the responsibility for normalization and minimize losses for financial creditors and other stakeholders." A financial regulator evaluated, "Taeyoung Construction's proactive attitude appears to have enabled the smooth establishment of the corporate improvement plan."

[Image source=Yonhap News]

Furthermore, ahead of the government's announcement of the 'PF Normalization Plan,' the handling direction of the 60 Taeyoung Construction PF sites has been one of the hottest topics in the financial and construction industries. According to the creditors, the accounting firm responsible for Taeyoung Construction's audit included in the improvement plan the opinion that liquidation through auction is necessary for one main PF site and nine bridge loan PF sites out of the 60 sites. It was identified that seven main PF sites and ten bridge loan sites require a change of contractor.

A key creditor official said, "It seems the accounting firm's opinion was presented comprehensively based on the handling plans submitted for each PF site," adding, "Whether the entire creditor group will accept this plan remains to be seen."

In fact, some subordinated investors and secondary financial institutions have already expressed reluctance to hand over PF sites where they have invested to liquidation through auction. Senior creditors can recover a significant portion of their investment through auction, but subordinated creditors face a high possibility of having to write off some or all of their investments as losses.

Meanwhile, the Industrial Bank plans to hold a creditor briefing session on the 18th and convene a financial creditor council within this month to resolve the corporate improvement plan. If this plan obtains approval from 75% of the entire creditor group, the Industrial Bank will sign an agreement with Taeyoung Construction within a month, inject new funds, and enter the joint management procedure.