[3P Threatening Korean Economy] Taeyoung PF Loan Guarantees Total 9 Trillion Won...First Creditors' Meeting on the 3rd

③Project Financing
New Year Financial Sector Shaken by Taeyoung Construction PF Incident
IBK to Hold First Creditors' Meeting on 3rd Afternoon
400 Creditors Notified of First Consultation Meeting

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 Taeyoung Construction flag is fluttering in the wind at the Taeyoung Building in Yeongdeungpo-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

From the very beginning of the new year, the financial sector is expected to suffer from the workout crisis of Taeyoung Construction. Financial authorities are on high alert for the shock that real estate project financing (PF) risks, starting with Taeyoung Construction, could have on the entire financial system, and are preparing contingency plans to deal with any possible emergencies.

The main creditor bank, Korea Development Bank (KDB), will also hold a creditors' briefing on the 3rd and begin the formal procedures to initiate the workout. Since the scale of Taeyoung Construction’s PF guarantee debt exceeds 9 trillion won, it is estimated that the number of creditor groups directly involved reaches around 400, leading to a prevailing analysis that there will be considerable difficulties not only in starting the workout but also in reaching the implementation agreement.

According to the financial sector on the 2nd, KDB will hold a creditors' briefing at its headquarters in Yeouido, Seoul, on the afternoon of the 3rd. At this briefing, ahead of the first financial creditors' meeting scheduled for the 11th, Taeyoung Construction’s management situation, self-rescue plan, and agenda items for the meeting will be discussed. A KDB official explained, "We have completed notifying creditors about the offline briefing to be held by KDB. It will be an opportunity to discuss key issues regarding Taeyoung Construction and the agenda items to be addressed at the creditors' meeting."

Besides Taeyoung Construction’s direct borrowings, the scale of loan guarantees exceeds 9 trillion won. The amount directly borrowed, including corporate bonds, secured loans, and PF, reaches 1.3 trillion won from about 80 banks and securities firms, while the number of projects for which Taeyoung Construction has provided PF loan guarantees totals 122, amounting to 9.18 trillion won. KDB has selected about 400 creditors from the related creditor groups and notified them of the briefing and creditors' meeting.

The size of the creditor group and the amount of claims are expected to be finalized through the briefing and creditors' meeting. Since the first notification was made to all stakeholders of Taeyoung Construction’s projects, the actual size of the creditor group may be somewhat reduced. However, as there are many related financial institutions such as mutual savings banks and credit unions, there are expected to be many twists and turns before voting rights are finalized. Even if Taeyoung Construction presents a self-rescue plan that meets expectations, negotiations may not be easy depending on the ranking of claims and exposure within the creditor group.

[Image source=Yonhap News]

Moreover, it has been reported that Taeyoung Construction recently failed to repay 45.1 billion won of accounts receivable secured loans that matured, signaling a loss of trust after the workout application. On the 29th of last month, Taeyoung Construction did not repay 45.1 billion won of secured loans out of 148.5 billion won in trade receivables that matured. This is the result of Taeyoung Group not fully fulfilling its promise to use proceeds from affiliate sales to secure Taeyoung Construction’s liquidity, thus failing to keep the original commitment to repay trade receivables normally. A financial sector official analyzed, "If the initially announced implementation plan is not properly followed before the creditors' meeting, it could damage trust and negatively affect the workout initiation process."

Financial authorities are also continuing busy preparations to respond to any possible scenarios. To prevent market instability caused by Taeyoung Construction’s workout application, they held the 'F(Finance)4 Meeting' and summoned financial sector officials to conduct preemptive measures to prevent the simultaneous insolvency of partner companies.

On the 29th of last month, the Financial Supervisory Service (FSS) held a meeting chaired by Senior Deputy Governor Lee Se-hoon with financial associations and deputy heads of credit departments from major banks, urging banks to actively support partner companies eligible for the Fast Track financial support program. On the first day of the new year, Economic Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok, Financial Services Commission Chairman Kim Ju-hyun, Bank of Korea Governor Lee Chang-yong, and Financial Supervisory Service Governor Lee Bok-hyun met to discuss increasing the size of the Corporate Bond Market Stabilization Fund from 20 trillion won to 30 trillion won.

The Financial Services Commission also plans to review Taeyoung Construction-related issues this week. Vice Chairman Kim So-young and Standing Commissioner Kwon Dae-young will hold consecutive meetings on the 2nd and 3rd to listen to opinions from the financial sector as well as representatives of Taeyoung Construction’s partner companies.

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@

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