The fate of the troubled Tongyang Group has been left to the market and its chances of getting back on its feet by itself are looking increasingly slim

2013-09-27 17:23

Fate of Tongyang tossed to market

By Kim Rahn
The fate of the troubled Tongyang Group has been left to the market and its chances of getting back on its feet by itself are looking increasingly slim. No fresh credit line is forthcoming with government regulators telling it to expect no help. The core of its problems is corporate bills and bonds it and its affiliates issued to keep afloat because banks turned its loan requests down. Tongyang International and Tongyang Leisure need fresh funds to repay maturing debts or face bankruptcy.The group is unlikely to retain its current structure, if the two go down.
Tongyang Leisure is the largest shareholder of Tongyang Corp., the holding company of the group, with a 36.25 percent stake.
The combined debts held by the group’s subsidiaries amounted to 2.8 trillion won with only 600 billion won in loans from banks. The rest is corporate bills and bonds.
Tongyang International and Tongyang Leisure have caused the liquidity crisis to the whole group by relying only on corporate bills and bonds.
“For banks and the financial authorities, there is nothing to do as Tongyang is not seeking support from banks. We think the group’s only option may be restructuring through court receivership according to market principles,” an official at the Financial Supervisory Service said.
Tongyang has placed key affiliates on the market, including energy arm Tongyang Power and kitchen appliance maker Tongyang Magic.
Analysts, however, are skeptical whether the group can relieve the cash problem through the sales.
“The group has to repay some 2.2 trillion won in corporate bills and bonds, but the total value of the affiliates placed on the market is less than 1 trillion won. This is also the value the group claims, and nobody knows how much the affiliates will actually be sold for,” Ahn Young-bok, an economist at Nice Investors Service, said.
He added that if the arms are really sold for 1 trillion won, the group will be able to repay a considerable part of urgent debts. “But the bills are maturing one by one almost every day, while a sales process takes time. So, even if an investor decides to buy the affiliates, the group may fail to finish the process and secure cash before the bills mature,” Ahn said.
Economist Jeong Won-hyung at Korea Ratings said the corporate bill issue may be resolved if the sales process is completed quickly. “But there will remain corporate bonds to pay back, so there must be additional sales or other measures. Without additional plans, huge uncertainty will continue about the group’s fate,” he said.
The group used to sell more than 67 percent of bills and bonds through its securities arm, Tongyang Securities. However, it will become impossible from next month with the introduction of a new law that bans a financial arm of a conglomerate from selling other affiliates’ bonds or corporate bills rated as non-investment grade.
Analysts say Tongyang affiliates’ ratings, which are already low, could become lower and they are closely watching the situation.
“Such low ratings imply a more negative situation, including the group being placed under court control,” Jeong said.

KTB PE’s cash to determine Tongyang’s survival of first liquidity crunch

Lee Ho-seung, Park Seung-chul, Jeong Suk-woo

2013.09.27 16:49:06

South Korea’s Fair Trade Commission approved the consolidation of Tongyang Magic filed by a consortium of KTB Private Equity Friday. This has heightened the likelihood of Tongyang Group averting the first cash crunch crisis due Monday.

Nonetheless, it remains unclear whether KTB Private Equity will transfer 120 billion won ($111.7 million) needed for the acquisition to Tongyang Group by Monday. If the cash is not secured, Tongyang Group will be unable to repay corporate bonds and commercial paper totaling 89.4 billion won maturing Monday, raising a possibility of putting Tongyang Leisure and Tongyang International under court receivership.

In an unprecedented move, the Fair Trade Commission hastily authorized KTB Private Equity’s application to consolidate Tongyang Magic submitted in early September.

But a full acquisition still requires a registration of the deal at the Financial Supervisory Service (FSS), and therefore it is premature to determine the consolidation has been finalized. KTB Private Equity submitted an application for registering the consortium to the FSS buy Tongyang Magic Monday, but afterwards participants in the consortium disputed over differences and decided to submit a revised application. An official at the FSS said “KTB Private Equity was supposed to present a final application, but has yet to submit one.”

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 (www.heroinnovator.com), 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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