Tongyang Group is expected to face the biggest-ever liquidity crisis as Orion Group has refused to offer emergency liquidity to the cash-strapped group; Orion’s Tam and wife Lee Hwa-kyung and Hyun Jae-hyun reportedly paid visit to graveyard of Lee Yang-gu, late founder of Tongyang Group, on Sep 14, which had raised the expectation that Orion Group would assist Tongyang Group repay debt

2013-09-23 16:37

Tongyang may go under court control

By Kim Rahn

Tongyang Group is expected to face the biggest-ever liquidity crisis as Orion Group has refused to offer emergency liquidity to the cash-strapped group. Following Orion’s decision, Tongyang’s creditors have expressed their reluctance to provide fresh funds, which many believe will likely drive the ill-fated group into court receivership. Orion Group officially said Monday that it and its major shareholders do not and will not want to help the Tongyang Group, saying foreign investors and the main shareholders of Orion have expressed concerns over Orion’s involvement in the financial mess.The announcement came after Tongyang Chairman Hyun Jae-hyun met Orion Chairman Tam Cheol-gon, his brother-in-law, during the Chuseok holiday and asked for help. Orion was spun off from Tongyang in 2001, and the wives of Hyun and Tam are daughters of Tongyang’s late founder Lee Yang-ku.
According to brokerage firms, some 1.1 trillion won worth of bonds and corporate bills issued by Tongyang’s affiliates are scheduled to mature in the months to come.
Hyun asked Tam and his wife to offer their stake in Orion, around 15-20 percent, as security, so that Tongyang could issue more asset-backed securities. “But Tam refused, as he may lose managerial rights if Tongyang fails to repay the debts,” an Orion official said.
Creditors say without support from Orion, they may not inject more liquidity as well because the amount is so huge. “We have neither planned a meeting of creditors yet, nor considered additional fund provision,” said an official at main creditor Korea Development Bank (KDB).
While the forecast is that Tongyang may be under court receivership, the official said it is Tongyang that decides whether to do so. “Tongyang is seeking other measures to get funds. We are now just watching the situation,” he said.
Earlier Hyun visited KDB CEO Hong Kyttack to appeal for more support, but was rejected.
Orion’s refusal also embarrassed the Financial Supervisory Service (FSS).
FSS Governor Choi Soo-hyun earlier asked Hyun and the relatives to act “more responsibly” to pay off the debts and prevent the firm from going bankrupt, such as selling their own assets.
“Choi made the proposal to protect retail investors who may suffer damage from bankruptcy. But the situation has not improved. What the FSS can do now is just to watch what Tongyang will do,” an FSS official said.
FSS also launched a special inspection into Tongyang Securities to see if the securities affiliate of the cash-strapped group was managing customers’ assets stably. It said the inspection is a preemptive measure to check risks before the group faces receivership or bankruptcy.
“We are especially watching corporate bills which Tongyang’s affiliates issued and the securities arm sold, as individual investors who bought the bills will suffer losses if the group fails to repay the matured bills,” the official said.
Following the turmoil, Tongyang’s major affiliates saw their stock prices plunge: Tongyang Securities fell 14.8 percent from the previous business day; Tongyang Cement & Energy, 14.9 percent; and Tongyang Networks, 14.8 percent.

Tongyang tanks after Orion snub

Shares take dive after group makes it clear no help forthcoming

Sept 24,2013

Shares of Tongyang Group affiliates tumbled yesterday following an announcement by Orion Group that it will not provide funds to the financially troubled conglomerate. Tongyang Group is the country’s 38th-largest conglomerate by assets, excluding public corporations, and has 30 affiliates specializing in diverse industries, including manufacturing and financial services.

Yesterday in Seoul, shares of Tongyang Cement plunged 14.93 percent to close at 2,450 won ($2.28), while Tongyang Corporation shares dropped 14.73 percent to 955 won. Shares of Tongyang Networks fell 14.86 percent to 945 won and Tongyang Securities declined 14.87 percent to 2,690 won.
The owners of Orion Group and Tongyang Group are close relatives. Orion Group, the country’s leading confectioner, spun off from Tongyang Group in 2001. Tongyang Group was founded by its late chairman, Lee Yang-gu, who had two daughters whose husbands are Tongyang Group Chairman Hyun Jae-hyun and Orion Group Chairman Tam Chul-kon.
Tongyang Group, which specializes in cement manufacturing, needs to pay back more than 1.7 trillion won in debts maturing over six months. Five affiliates of Tongyang Group issued 876.3 billion won in commercial paper, 604.2 billion won in corporate bonds and 256.1 billion won in short-term loans. Previously, the conglomerate paid back debts by selling corporate bonds and commercial papers through its affiliate Tongyang Securities, but that will no longer be possible with a change in law starting next month that prohibits brokerage firms from selling low-credit corporate bonds through affiliates.
Business conditions for Tongyang Group have also worsened due to the sluggish construction and cement market with the lingering bad economy. In the third quarter of last year, Tongyang Group’s debt ratio, which refers to the ratio of total debt over equity capital, was 680 percent. That ratio this year over the same period skyrocketed to more than 1,200 percent.
With the financial situation expected to worsen for Tongyang Group, it reportedly requested help from Orion Group.
“Following reports that Tongyang Group asked Orion Group for financial help, we have been receiving continuous calls from concerned overseas investors and major shareholders for an explanation,” Orion Group said in a statement. “We came to a conclusion that there’s a need for us to clearly present our position that Orion Group and major shareholders do not have any intention of supporting Tongyang Group and that there will be no plan in the future, as well.”
While shares of Tongyang affiliates tumbled, shares of Orion Corporation went up 5.11 percent to close at 967,000 won yesterday.

Orion chairman rejects to support Tongyang

Kim Yong-young

After careful deliberation, Tam Chul-kon, chairman of Orion Group, announced he will not help Tongyang Group survive its cash crunch. As a result, Tongyang is forecast to struggle to pay back commercial papers of 1.1 trillion won ($1.0 billion) maturing this month. Orion Group said “Orion Group and its majority stakeholders do not and will not provide financial assistance to Tongyang Group,” in a press statement released Monday. The company clarified it does not and will not consider helping salvage the financially troubled conglomerate.  The Orion Group’s withdrawal put Tongyang Group in a dilemma. The announcement comes as a blow, especially because chairman Tam, Lee Hwa-kyung, vice chairman of Orion Group, and Hyun Jae-hyun, chairman of Tongyang Group reportedly paid visit to graveyard of Lee Yang-gu, late founder of Tongyang Group, on September 14, which had raised the expectation that Orion Group would assist Tongyang Group repay debt. Previously, Tongyang Group had planned to collateralize chairman Tam’s stakes in Orion Group to issue asset-backed securities (ABS) to finance repaying maturing commercial paper. But as Orion Group declined to offer assistance, Tongyang Group is forced to start from scratch in developing a plan to secure fund to pay off debt.

Meanwhile, Tongyang Group declined to comment on Orion Group’s refusal for support, saying it is in the process of catching up with the situation.