Fears spread as troubled Taeyoung E&C may be put under court receivership

[Photo by MK DB]

South Korea’s mid-tier builder Taeyoung Engineering & Construction Co. (Taeyoung E&C) may enter a court-led corporate recovery procedure instead of a debt workout, raising concerns about its ripple effect on the suppliers and partners.

On Sunday, Taeyoung Group reportedly announced its commitment to provide 89 billion won in funds to the financially-strapped Taeyoung E&C by Monday amid growing pressure from creditors and financial authorities.

Sunday was the deadline for Taeyoung E&C to submit additional restructuring plans as requested by financial authorities.

“The 89 billion won support for Taeyoung E&C is simply a precondition for initiating workout negotiations,” said a financial authority official. “Any progress will come after the promised support is actually provided.”

Earlier on Sunday, authorities and creditors emphasized direct financial support for Taeyoung E&C as a top-priority condition for initiating the company’s workout, and the support scale should be equivalent to 89 billion won ($67.63 million), which was used for the TY Holdings Co. joint debt relief from the Taeyoung Industry Corp. sales proceeds.

Last week, Taeyoung Group announced its intention to support Taeyoung E&C with 154.9 billion won, out of the total Taeyoung Industry sales proceeds of 206.2 billion won.

However, the actual funds transferred to Taeyoung E&C amounted to only 65.9 billion won, with the remaining 89 billion being used for the joint debt repayment of TY Holdings, the holding company of Taeyoung E&C.

Creditors considered this a violation of Taeyoung E&C’s commitment to a self-led restructuring plan, demanding that the 89 billion won support be resolved first before proceeding with the workout discussions.

Another condition for the workout is financial support from the Taeyoung Group owner family, which has been criticized for providing little support from their personal assets.

Creditors expected 300 billion won or more from the owner family, given that Taeyoung E&C’s debt is estimated around 2.5 trillion won.

However, the amount of money presented by the Taeyoung Group owners is only 48.4 billion won, and excluding Chairman Yoon Seok-min’s Taeyoung Industry sales proceeds of 41.6 billion won, the actual support from their personal assets amounts to only 6.8 billion won.

As Taeyoung E&C failed to present satisfactory restructuring measures in a timely manner, the emergency economic cabinet meeting originally scheduled for Sunday did not take place.

The government and financial authorities, instead, were reported to be examining various scenarios in preparation for the possible failure of Taeyoung E&C’s workout, including a court receivership, aiming to minimize the damage to contractors and pre-sale buyers.

The canceled meeting was rescheduled for Monday, and the government’s final stance is likely to be clarified after this meeting.

If the court-led recovery procedure is initiated, damages are also anticipated for companies that had direct business transactions with Taeyoung E&C, including 581 contractors and 494 buyers.

Last week, the Korea Specialty Contractors Association (KOSCA) conducted a damage survey targeting 461 member companies associated with Taeyoung E&C.

“The prior concern was about changing the conditions of collateral-backed loans and extending their maturity, potentially leading to not receiving payments properly,” said a KOSCA official.