Three debt-ridden units of Tong Yang Group filed for court receivership Monday, as part of the conglomerate’s desperate moves to avoid defaulting on corporate bonds and commercial paper totaling more than 100 billion won ($90.9 million) that matured on the day.
The court is to manage assets of Tong Yang Inc. ― the group’s de facto holding firm ― Tong Yang Leisure and Tong Yang International and later could order the group owner to sell some corporate or private assets for management normalization.
While Tong Yang chairman Hyun Jae-hyun said he would do his best to minimize investors’ losses, market observers predict that the chief will eventually lose control of the group.
“Under the coming assessment of the court, the group is expected to redeem its debt by selling off some shares and properties owned by affiliates and major shareholders,” said an official of Nice Investors Service.
“As a capital reduction, or debt-to-equity swap, will be inevitable after redeeming its debt, Tong Yang will see the current inter-affiliate shareholding structure seriously weaken or break up,” he said.
Group chairman Hyun holds 4.45 percent and 30 percent stakes in Tong Yang Inc. and Tong Yang Leisure, respectively. Tong Yang Leisure and Tong Yang International hold 14.8 percent and 19 percent stakes in financial unit Tong Yang Securities, respectively.
The shareholding structure is stoking worries over possibly heavy losses of Tong Yang Securities, whose stocks dropped 13.99 percent to close at 2,460 won per share on the day.
At a news briefing, Financial Supervisory Service Gov. Choi Soo-hyun said investors in CPs and bonds issued by Tong Yang Leisure and Tong Yang International would see losses.
The chief regulator hinted that chairman Hyun should have conducted preemptive measures like full-fledged restructuring in advance.
Choi added that financial authorities would carry out close monitoring of Tong Yang’s financial units to prevent losses to small investors.
The nation’s 38th-largest conglomerate when state-funded firms are excluded has been saddled with maturing debt, including commercial paper issued by its subsidiaries, totaling 1.1 trillion won.
Posting a historic debt-to-equity ratio of 1,533 percent as of the first half of this year, based on affiliates‘ consolidated financial statements, Tong Yang is suffering a liquidity crisis as creditors and its sister group Orion have refused to help the embattled group.
