25% of doomed companies are builders

It seems that Dong Ah Construction Industrial Co. has become a scapegoat for corporate restructuring. Of course, Dong Ah has failed to generate operating profit and might not survive without fresh loans. And the government decision to oust the contractor has affected to the overall environment of corporate restructuring.

The decision on Hyundai Engineering & Construction and Ssangyong Cement was postponed for a day to see if they could work out decisive self-relief packages to raise funds through the sale of assets.

Ssangyong Cement, which has attracted 365 billion won from Japan's Pacific Cement and Cho Hung Bank has converted 300 billion won of debt to equity investment, but it has been saved conditionally.

Kohap will stay afloat, as its liquidity has improved substantially, while Jindo will be sold to the Corporate Restructuring Vehicle.

The government has included 42 companies under workout programs in the list of insolvent companies that will be liquidated. Therefore, only 10 additional companies with signs of insolvency will be liquidated, according to the government plan.

To the last minute, creditor banks were standing against each other over the list of target companies for liquidation. Creditors agreed by unanimous consent not to include Chungnam Spinning, Sungchang, Byuksan Constriction and several other companies on the list. Kohap (86%), Saehan Media (80%), Saehan (90%), Kabul (86%) also avoided liquidation with an agreement by the majority of creditors.

It is noteworthy that construction companies accounted for nearly a quarter of the target companies. It is interpreted as meaning that the poor prospects for constriction businesses and their relatively high debt-to-equity ratios were considered.

Of the 50 companies, 30 firms, including 10 Daewoo Group affiliates, are expected to close operation through liquidation or court receivership. Dong Ah Construction and Shin Hwa have already applied for court receivership. In addition, Kohap, Jindo, Sepoong and 17 others will be sold partially or entirely so their operation will be maintained, although company ownership will change.

Hanvit Bank officials, who are engaged in screening companies subject to liquidation, said that a decision will be made in a way to minimize the damage by focusing on securing credit. However, the destiny of about 50 insolvent companies will be decided depending upon their current status, including court receivership, workout and normal operation.

Court receivership waves interest payments for up to 10 years, making it difficult to secure credit. As court receivership is sometimes abused as a shelter, processing of Dong Ah Construction and other companies under court receivership is expected to speed up.

The destiny of Kohap, Jindo and Sepoong will be partial or entire sales in accordance with buyers' desires. On Nov. 2, Kohap Group announced that it would sell its two Ulsan plants to a foreigner buyer.

Hong Chan-Sun hcs@donga.com