Taeyoung's 'Corporate Improvement Plan' Fateful Day... Creditors Need '75%' Approval

KDB Industrial Bank to Proceed with Creditor Consent Process on 30th
Woori Bank Raises Issue of 3-Year Grace Period for Parent Company Joint Debt
Majority of Creditors Sympathize with Purpose... "No Procedural Issues Expected"

Speed of Handling 60 PF Sites is Key
10 Sites to be Liquidated Combining Main PF and Bridge Loan PF

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

The creditor group’s approval process for the corporate improvement plan of Taeyoung Construction, which is undergoing a workout (corporate financial restructuring) procedure, is underway. Although Woori Bank expressed opposition to the proposal to defer the joint debt of TY Holdings, Taeyoung Construction’s parent company, creating some burden on the workout process, the prevailing view is that the plan will pass smoothly as the rest of the creditors generally agree with the purpose of the workout.

According to financial authorities on the 30th, the Korea Development Bank (KDB), the main creditor bank of Taeyoung Construction, will hold the 3rd Financial Creditors’ Council and conduct a written vote on the corporate improvement plan. The plan requires approval from more than 75% of the creditors to pass, and KDB plans to sign an agreement to implement the plan within a month after the council’s resolution. The agreement will include detailed contents such as management goals and implementation plans.

An official from KDB stated, "Since the corporate improvement plan, which was previously established, has been presented as an agenda item at the council after a briefing session, we plan to complete the creditor approval process by the 30th," adding, "Subsequent procedures such as signing the agreement will proceed in May as originally planned."

The corporate improvement plan subject to resolution includes self-help measures for the major shareholder’s management responsibility and support measures from the creditor group. The major shareholder’s shares, including those of the parent company TY Holdings, will be reduced free of charge at a ratio of 100 to 1, and the entire 400 billion KRW loan before the workout will be converted into equity. The major shareholder also plans to convert 334.9 billion KRW of loans after the workout into 100% perpetual bonds.

The creditor group, considering the need for capital increase at Taeyoung Construction and the manageable debt level, will convert 50% of unsecured bonds, amounting to 239.5 billion KRW, into equity and defer repayment of the remaining 50% for three years. The interest rate will also be lowered to 3%, while continuing to provide new funding and guarantees.

To support new funding, the creditor group plans to provide 300 billion KRW (at an interest rate of 4.6%) as operating funds to prepare for situations where it becomes difficult to collect construction payments. The loss-sharing ratio for new funds is 51.9% for KDB, 16.5% for Hana Bank, 11.8% for Woori Bank, 9.9% for NongHyup Bank, and 6.6% for Shinhan Bank.

However, recently, Woori Bank, one of the main creditors, raised objections to the proposal to defer repayment of TY Holdings’ joint debt for three years, increasing the burden on the workout process. Woori Bank currently holds 44 billion KRW in direct debt and 36 billion KRW in joint debt from TY Holdings. Woori Bank explained, "Since TY Holdings and Taeyoung Construction are separate companies, we oppose the deferral of joint debt."

In response, KDB and other banks agree with the proposal to defer TY Holdings’ joint debt in line with the purpose of the workout. Although the Financial Creditors Adjustment Committee plans to make a decision on Woori Bank’s objection in May, the financial sector believes it will not significantly affect the ongoing workout process.

A financial sector official said, "If the major shareholder’s debt is handled separately, the workout process may not proceed as planned," adding, "It is a time when stakeholders need to share the pain for early normalization according to the purpose of the workout."

Going forward, the handling of 60 Taeyoung Construction project financing (PF) sites will determine the success or failure of the workout. According to the corporate improvement plan, the accounting firm that conducted due diligence classified 40 main PF sites as 4 completed, 28 in progress, 7 with contractor changes, and 1 for liquidation. For 20 bridge loan PF sites, 1 is in progress, 10 have contractor changes, and 9 are for liquidation. In total, 10 sites among the main and bridge loan PF sites are considered to require liquidation.

A creditor group official said, "The speed of the workout will depend on the degree of coordination among stakeholders for each PF site," adding, "Especially, policy and institutional support are needed for sites undergoing contractor changes and liquidation."