Taeyoung Construction Submits 'Improvement Plan' to Creditors' Council... "Bone-Cutting Self-Restraint Efforts"

San-eun to Hold Resolution Procedure on the 30th Following Corporate Improvement Plan Submission
Taeyoung Group Plans Major Shareholder Capital Reduction, Equity Conversion, and Perpetual Bond Conversion
Reduction of 22 Executives Including Honorary Chairman Yoon Se-young and Chairman Yoon Seok-min... Salaries Cut by Up to 35%
Various Cost Reduction Measures Prepared, SG&A Ratio at Approximately 3.9% of Sales

Taeyoung Construction Headquarters, Yeongdeungpo-gu, Seoul. Photo by Yongjun Cho jun21@

Industrial Bank of Korea, the main creditor bank of Taeyoung Construction, which is undergoing a workout (corporate financial restructuring) process, has completed a briefing session on the 'Taeyoung Construction Corporate Improvement Plan' for all creditors and will submit the plan as an agenda item to the Financial Creditors' Council. The 'Taeyoung Construction Corporate Improvement Plan,' prepared over three months by Industrial Bank of Korea and the audit accounting firm, will be finalized through a resolution at the council meeting scheduled for the 30th.

According to financial authorities and the main creditors of Taeyoung Construction on the 19th, Industrial Bank of Korea held a two-hour briefing session the previous day for Taeyoung Construction creditors, covering the due diligence results on real estate project financing (PF) sites and various self-help measures included in the improvement plan. After consultations with major creditors, Industrial Bank of Korea will submit this corporate improvement plan as an agenda item for the 3rd council meeting scheduled for the 30th.

A key creditor group official said, "The briefing session was conducted in a generally calm atmosphere," adding, "It appears that Taeyoung Group has included stringent self-help measures."

The audit firm conducting due diligence on Taeyoung Construction concluded that the going-concern value of Taeyoung Construction is higher than its liquidation value. The going-concern value estimated by the audit firm is approximately KRW 1.15 trillion, which is higher than the liquidation value of KRW 1.04 trillion. The recovery rate of unsecured bonds held by the creditor group is expected to exceed 40% under the going-concern scenario, compared to only 7% in liquidation.

Taeyoung Group plans to first resolve the state of complete capital erosion (-KRW 635.6 billion) and improve financial soundness by expanding capital through major shareholder capital reduction, debt-to-equity conversion, and perpetual bond conversion. A 100-to-1 free capital reduction will be conducted for TY Holdings, the major shareholder, and affiliated companies (2-to-1 for minority shareholders). The KRW 400 billion loan that TY Holdings provided to Taeyoung Construction before the workout application will be converted 100% into equity, and if losses are confirmed according to the PF project site handling plan, the KRW 150.4 billion guarantee liability will also be converted 100% into equity. The total bond amount planned for conversion by TY Holdings reaches KRW 550.4 billion.

Additionally, KRW 334.9 billion that TY Holdings supported Taeyoung Construction with as a self-help plan after the workout commencement will be converted into perpetual bonds to expand capital. This is to improve the financial structure this year and increase the possibility of repayment of remaining claims by financial creditors.

The creditor group's debt-to-equity conversion scale is set at 50%. The creditor group, including Industrial Bank of Korea, will convert KRW 239.5 billion, which is 50% of the principal debt, and KRW 272.7 billion, which is 50% of the PF guarantee debt, into equity. The total is about KRW 512.2 billion. The conversion price was set at KRW 2,310, the closing price on March 13, the day trading of Taeyoung Construction shares was suspended. Another creditor group official said, "Since a partial capital erosion could occur if a free capital reduction is conducted and conversion is made at the face value of KRW 500, it was decided to convert at the closing price on the trading suspension date."

Seoul Yeouido Industrial Bank Headquarters. Photo by Huh Younghan younghan@

Taeyoung Group has been implementing self-help measures such as supporting the sale proceeds of Taeyoung Industry, securitizing Blue One, refinancing collateral for SBS Medianet and DMC Media, and providing collateral for minority shares of TY Holdings and SBS. Taeyoung Construction itself has also securitized real estate assets including its headquarters building, SOC shares, and unlisted stocks.

In particular, to demonstrate sincerity in implementing the self-help plan, Taeyoung Group submitted a plan to Industrial Bank of Korea to reduce key executives and cut their salaries for a certain period. Taeyoung Construction decided to dismiss founder Chairman Yoon Se-young and Chairman Yoon Seok-min and reduce 20 executives. The founder Chairman and Chairman will only hold chairman positions at TY Holdings, the major shareholder of Taeyoung Construction.

To maintain the selling and administrative expense ratio at about 3.9% of sales, various costs will be reduced, and executives' salaries will be cut until 2026. Salaries will be reduced by 35% for presidents and above, 30% for vice presidents, 20% for executive directors, 15% for managing directors, and 10% for deputy managing directors. Employees' salaries will be frozen during the same period. Additionally, expenses for training, advertising, and technology development will also be cut. A Taeyoung Construction official explained, "This is a more responsible self-help plan than previous workout cases, and we have made efforts to include sincerity in the improvement plan. It means that executives will take greater responsibility personally, and we plan to implement it as submitted to Industrial Bank of Korea."