Creditors for Pantech, Korea’s third-largest smartphone maker, agreed to let the ailing company enter a second corporate bankruptcy workout program.

Pantech creditors agree to new workout program

Mar 06,2014

Creditors for Pantech, the nation’s third-largest smartphone maker, agreed yesterday to let the ailing company enter a second corporate workout program. Debt repayment was postponed for three months, during which the company will enter into discussions with creditors to determine what, if any, support they are willing to provide.
The agreement was reached yesterday during a meeting at the Yeouido headquarters of the Korea Development Bank, Pantech’s biggest creditor. 
The reprieve comes just 26 months after Pantech graduated from its first corporate workout program.
Pantech, which has the Sky and Vega smartphone brands, has been struggling to compete versus the dominant smartphones of Samsung Electronics and Apple. Domestically, 60 percent of the smartphone market is controlled by Samsung, and rising competition internationally by U.S. and Chinese brands has further eroded Pantech’s position.
Pantech entered into its first workout program in 2007, from which it was released in December 2011. The company operated in the black for 20 consecutive quarters, from the third quarter of 2007 to the second quarter of 2012. But Pantech then returned to its losing ways in the third quarter of 2012 and has since posted six straight quarters of operating losses.
The company tried to stem the bleeding in October last year with intensive restructuring, cutting 30 percent of its workforce. In addition, the vice chairman and the founder of Pantech, Park Byeong-yeop, stepped down in September of last year. But the losses only mounted.
However, yesterday’s meeting did not outline how much additional financial support creditors will be willing to extend.
The creditors are reportedly reluctant to hand over additional financial support, even though they claim the company’s technology is competitive.
After the first corporate workout in 2007, Pantech moved away from exports to focus on domestic sales. However, with intensified competition from Samsung and LG, the new strategy also fell short.
Nevertheless, Pantech officials sounded optimistic about the second workout round, saying the company’s problems were rooted in marketing costs and liquidity, not product quality or technology.
“We believe that additional funding can solve the problem,” said a spokesman for Pantech. “The creditors are also taking a serious consideration because of the company’s technological competencies. That is why they have not chosen court receivership over the corporate workout.”
Korea Development Bank is the main creditor of Pantech, owning 40 percent of the company, followed by Woori Bank with 30 percent and NH Bank with 15 percent.
Although Pantech has low brand recognition, it claims not to be behind Samsung and Apple in terms of technology, pointing out that it launched a 5-inch smartphone before Samsung did and implemented fingerprint recognition technology before Apple.
However, with Pantech so heavily invested in the domestic market, the tough conditions at home could further hamper the company’s revival.
BY kim jung-yoon [kjy@joongang.co.kr]