What is Taeyoung Construction's 'Workout' Procedure?…Eyes on Korea Development Bank and Creditors (Comprehensive)

The Lead Creditor Bank ShinEop Bank Takes Over
First Creditors' Meeting on January 11
Procedures Remaining: Asset-Liability Audit, Corporate Improvement Plan Establishment, and Agreement

Mid-sized construction company Taeyoung Construction has applied for a workout (corporate restructuring) after failing to overcome the critical debt maturity despite all-around self-help efforts, drawing attention to the Korea Development Bank's (KDB) actions after taking over the baton. Since several procedures remain, including asset and liability due diligence and corporate improvement plan implementation agreements involving financial creditors' councils before the workout commencement, a number of twists and turns are expected.

According to financial authorities and creditors on the 29th, the specific workout procedures going forward will be handled by the main creditor bank, KDB, under the Corporate Restructuring Promotion Act announced on the 26th. KDB, as the main creditor bank, holds 200.2 billion KRW, including 129.2 billion KRW in PF loans and 71 billion KRW in short-term borrowings. Following that, Kookmin Bank and Industrial Bank of Korea lent 160 billion KRW and 99.7 billion KRW respectively. Woori Bank and Shinhan Bank each provided loans of 72 billion KRW and 63.6 billion KRW. Hana Bank also lent 61.9 billion KRW, including PF loans.

After Taeyoung Construction applied for the workout, KDB held emergency meetings with the Financial Services Commission and the Financial Supervisory Service and notified the convening of the first creditors' council. Accordingly, the creditors' exercise of claims against Taeyoung Construction will be suspended until the council concludes. The first creditors' council is scheduled for January 11 next year. The agenda is expected to include the council's composition, commencement of joint management procedures, whether to suspend claim exercises and the suspension period, and PF project site management standards. These agenda items will be resolved with at least 75% approval based on credit exposure, and after resolution, claim exercises can be suspended for up to four months.

A normalization plan for Taeyoung Construction is necessary to decide whether to commence the workout, but prospects are not easy. Considering that Taeyoung Construction ultimately applied for the workout despite all-around efforts such as selling core assets to raise cash to defer debt, high-intensity self-help measures, including the scale of the major shareholder's personal fund contributions, are expected to be key in the subsequent procedures.

Taeyoung Construction already submitted a draft including collateral provision, major shareholder personal fund contributions, and the sale of key affiliates, including major subsidiaries, when applying for the workout on the 28th. This self-help plan reportedly includes the sale of core affiliates such as Ecobit, a comprehensive environmental company, and Blue One, a leisure company, excluding SBS. Ecobit is a key company born from the 2021 merger of Taeyoung Group's TSK Corporation and KKR's Eco Solution Group, focusing on medical and industrial waste incineration and recycling, serving as a major cash cow. Considering EBITDA and cash assets, its corporate value is estimated to be between 2 trillion and 3 trillion KRW. However, there are concerns that the sale of these affiliates may face difficulties due to the limited implementation period agreed with creditors and the tightening M&A market amid rising interest rates.

Korea Credit Rating also downgraded Taeyoung Construction's unsecured bond credit rating from A- (under review for downgrade) to CCC (under review for downgrade), stating, "We will reflect the commencement and progress of the workout and the level of credit impairment in the credit rating going forward." This suggests that if the workout process does not proceed smoothly, market evaluations are likely to become more negative.

If the agenda passes at the first creditors' council, the process will enter the stage of asset and liability due diligence and drafting a corporate improvement plan for Taeyoung Construction. The corporate improvement plan, developed over up to four months, typically includes PF project site disposal plans, financial structure improvement measures, liquidity procurement plans, and company management and governance plans. KDB plans to hold multiple councils as needed to discuss current issues and resolve handling measures.

If the corporate improvement plan is established as scheduled, the acceptance of the plan will be decided at the second creditors' council tentatively scheduled for around April 11 next year. It is a principle to resolve within three months from the workout commencement date, with a one-time extension allowed. The execution of the implementation agreement between Taeyoung Construction and the creditors is likely to occur around May 11, within one month from the second resolution date.

Kim Ju-hyun, Chairman of the Financial Services Commission, explained, "We will actively support funds while calming anxiety and also implement effective measures such as improving the business viability of PF project sites," adding, "Although there are global economic issues, if interest rates and macroeconomic conditions improve, I think a soft landing as planned will be possible."

On the 28th, Taeyoung Construction, which is experiencing a liquidity crisis due to real estate project financing (PF), applied for a workout (corporate restructuring). The photo shows the entrance of Taeyoung Construction headquarters in Yeongdeungpo-gu, Seoul. Photo by Jinhyung Kang aymsdream@

This content was produced with the assistance of AI translation services.