Pantech Seeks Fresh Lifeline From Creditors

Feb 26, 2014

Pantech Seeks Fresh Lifeline From Creditors

MIN-JEONG LEE

While the spotlight maybe on the new gadgets being launched at Mobile World Congress by some of the world’s biggest tech companies, spare a thought for little old Pantech, South Korea’s ailing smartphone maker.

After trying for years to eke out profits and carve a niche for itself in the smartphone industry, Pantech is now seeking help to restructure its debt.

Pantech reached out to its creditor banks this week, requesting to be put under a debt-restructuring program that will, the company hopes, allow it to freeze or delay the repayment of its debt.

“Through this (debt) workout, we expect to improve Pantech’s financial status and secure a stable flow of liquidity,” the company said in a statement on Tuesday. The move gives Pantech more time to map out a mid- to long-term strategy and seek more external investors, it said.

Last year, the company received two life-saving investments from QualcommQCOM -0.69% and hometown rival Samsung Electronics, which bought a 10% stake in Pantech. Qualcomm increased its share in the company to 12% through a debt-equity swap.

After reporting five straight quarters of operating losses, the phone maker amassed 1.222 trillion won ($1.14 billion) in total debt as of Sept. 30, exceeding the amount of total assets it holds of 1.034 trillion won. It leaves the company with a debt ratio of nearly 120%. In comparison, Samsung’s debt ratio was at 31% and LG Electronics066570.SE -0.65% at 64% during the same period.

“Creditors are going to review the possibility of putting (Pantech) under a debt-restructuring program next week,” an official at the Korea Development Bank, which is one of the creditors, told The Wall Street Journal. He declined to be named.

“Should there be an agreement among creditors, the company will undergo due diligence for about two to three months, after which we will work to put together a normalization plan in discussion with the company,” the KDB official said.

The plan, the company hopes, will include a potential freeze, if not an extension, of its debt maturing this year as well as more debt-for-equity swaps from its creditors.

“The workout program can be a new opportunity for Pantech,” the company stressed, noting that it was able to significantly narrow its net loss in the fourth quarter from the previous quarter.

The company isn’t joking when it says it tried hard, because it sent 30% of its employees — about 700 to 800 people — on unpaid leave for six months in September, as part of its massive business restructuring, while many others saw a cut in their paychecks.

Pantech also scaled back its mobile business around the same time, announcing that it would no longer market its phones overseas.

Little known outside of Korea, Pantech is the country’s third largest smartphone maker. Before smartphones came along, it was better known as the seller of SKY, a popular mobile phone brand in the mid-2000s, when folder phones were a big hit.

This isn’t the first time that Pantech is feeling the heat from competing against bigger rivals such Samsung and LG Electronics. It sought a similar debt-restructuring program back in 2007, when it accumulated massive debt and losses.

So when Samsung announced in May that it would buy a stake in Pantech for 53 billion won, the decision left many in the market puzzled over the rationale behind the move, although the amount of money wasn’t much for the cash-rich company.

Pantech is now eager to seek more external investors and many in the market are wondering if Samsung will come to its rescue again.

Samsung didn’t immediately have a comment on the matter.