The liquidity crisis at the STX Group, Korea’s 13th largest conglomerate, is weighing heavily on creditor banks amid dismal earnings outlook for the banking sector

2013-05-07 18:12

STX crisis may spill into banking sector

Credit extended to cash-strapped group reaches W13 tril.

By Na Jeong-ju

The liquidity crisis at the STX Group, the country’s 13th largest conglomerate, is weighing heavily on creditor banks amid dismal earnings outlook for the banking sector.

Creditors of STX may suffer losses totaling 13.2 trillion won ($12.1 billion) if the group collapses, according to the Financial Supervisory Service (FSS).“That’s just the worst case scenario that’s unlikely to happen, but it will take a long time until creditor banks fully recover from the impact of the STX crisis,” an FSS official said asking not to be named.

The Korea Development Bank (KDB), the Export-Import Bank of Korea (Korea Eximbank), Nonghyup Bank and other creditors loaned a total of 5.2 trillion won to STX as of the end of March. They also provided payment guarantees worth 7.1 trillion won and were holding 771 billion won worth of corporate bonds issued by the firm.

KDB will suffer the biggest damage should STX default. STX owes 3.9 trillion won to KDB, 2.28 trillion won to Korea Eximbank, 2.24 trillion won to Nonghyup, 1.53 trillion won to Woori Bank and 1.13 trillion won to Korea Finance Corp.

A bigger problem is that they must inject a lot more money than the potential losses if they decide to save STX. Some industry watchers say the amount of fresh capital needed to bring the firm back on track may surpass 10 trillion won.

Last week, STX asked creditors to provide emergency loans to four of its affiliates in exchange for accepting creditor-led restructuring programs. The four units are STX Offshore & Shipbuilding, STX Engine, STX Heavy Industries and ForceTEC.

The group earlier attempted to sell STX Pan Ocean, but no firms participated in the bidding, according to sources. STX Construction also filed for a court-initiated recovery program.

“The creditor banks are currently conducting due diligence to decide whether to provide fresh loans to STX,” a KDB official said. “They share a sense of urgency in resolving the financial problems at STX because a default may create ripple effects throughout the whole national economy. What matters is which bank should take how much risk.”

The crisis at STX also cast a dark shadow on earnings prospects for the lenders.

The banks will have to increase their loan loss reserves worth at least 840 billion won, which means their financial status could worsen further amid dwindling incomes. They also need to roll over debts held by STX ― over 2.2 trillion won of debts are scheduled to mature this and next year.

“That suggests saving STX is not a simple matter for creditors. It’s a huge risk,” said an executive of Nonghyup. “They may take the risk to prevent a bigger disaster. But given the unfavorable market conditions for the shipbuilding and construction industries, in which STX is heavily involved, it will be a difficult decision to make.”

STX itself has made its own restructuring efforts.

According to KDB, Kang is considering selling two units of STX Europe ― STX France and STX Finland. STX Chairman Kang Duck-soo also recently handed over his controlling stake in STX Offshore & Shipbuilding, which generates more than 50 percent of the group’s total revenue, to creditors.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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