Convincing smaller creditors key for Taeyoung workout

Yoon Se-young, founder and honorary chairman of Taeyoung E&C speaks at a additional self-rescue measures press conference on Jan. 9, 2024. [Photo by Yonhap]

The possibility of a workout for South Korea’s mid-tier builder Taeyoung Engineering & Construction Co. (Taeyoung E&C) has revived as Taeyoung Group accepted most of the requests from financial authorities and creditors for the builder’s workout application. But there are still many challenges to overcome.

According to financial industry sources on Monday, the decision on whether to approve a workout for Taeyoung E&C will be made at the first creditors meeting on January 11, 2024. Prior to the meeting, state-run lender Korea Development Bank (KDB), the company’s main creditor, plans to discuss Taeyoung’s implementation of the previously retracted self-rescue plan and its appeal for the commencement of the workout. However, financial authorities and creditors insist that Taeyoung Group must present additional self-rescue measures beyond the four initially promised. For this reason, Taeyoung is reportedly considering offering a part of the 33.7 percent stake in TY Holdings Co. held by the family of founding chairman Yoon Se-young.

“The creditors are not choosing between a good and a bad path, but a bad and a less-bad path,” a financial authority official said. “If the expected additional self-rescue measures do not materialize, it is uncertain whether the creditors will approve the workout.”

The fact that Taeyoung E&C has as many as 609 creditors is also expected to affect the approval of its workout. A workout can commence if more than 75 percent of the creditors agree on the measure at their first meeting. But there are significant physical constraints for KDB to have sufficient discussions with such a large number of creditors before the first meeting on January 11th. Even if the financial authorities accept Taeyoung’s appeal, KDB still needs to convince creditors.

According to the list of creditors, there are 54 credit cooperatives that have lent money directly to Taeyoung E&C.

Expanding the scope to include those who have guaranteed the builder’s debts, there are dozens of local community credit cooperatives, as well as savings banks including OK, Hanwha, Namyang, and Woori, and agricultural cooperative (NongHyup) banks on the list.

“About 30 percent of Taeyoung E&C’s creditors are large domestic financial holding companies (including affiliates), while the rest are smaller financial firms,” a financial industry insider noted. “Convincing these smaller creditors will be the key.” The idea is that smaller creditors are less predictable than their larger counterparts when it comes to workouts, making it harder to predict their decisions.

The first creditors’ meeting will determine the exact size of the creditors’ group and the amount of outstanding debt, as well as the voting rights of individual creditors. Discussions include whether to defer the debt exercise and for how long, conducting due diligence to develop a corporate improvement plan, and setting management standards for project financing. However, this assumes that more than 75 percent of creditors agree to initiate a workout for Taeyoung E&C.

Even if the workout is approved, the company still needs to secure three to four months’ worth of operating funds. Creditors previously stated that they would not support new funds without conditions even if Taeyoung E&C entered a workout. Working capital for the due diligence period will be provided only when Taeyoung presents sufficient self-rescue measures.