April 30, 2024

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(Yonhap)

The state-run Korea Development Bank (KDB), the main creditor of Taeyoung Engineering & Construction, will likely conduct massive capital reduction and capital expansion in a way to support the troubled builder's debt restructuring, industry sources said Tuesday.

According to the sources, KDB has proposed a draft corporate improvement plan to 18 other creditors, suggesting a capital reduction and expansion strategy to address Taeyoung's financial challenges.

The plan includes a 100-to-1 ratio for reducing major shareholders' stakes without compensation and a 2-to-1 ratio for minority shareholders.

In addition, KDB aims to raise 1 trillion won ($717.6 million) through debt-equity swaps and other capital expansion strategies to bolster Taeyoung's balance sheet.

Taeyoung, the 16th-largest builder in South Korea in terms of construction capacity, applied for a debt restructuring program in December last year due to a liquidity shortage over real estate project financing (PF) loans.

It needs massive capital expansion as its total assets stood at minus 635.6 billion won, indicating a negative net worth in which its outstanding liabilities exceed its assets.

To address this shortfall, KDB plans to secure 300 billion won through the conversion of secured bonds, while TY Holdings, Taeyoung's holding company and largest stakeholder, will inject 700 billion won through equity conversion.

Through the capital increases, TY Holdings is expected to retain control over Taeyoung.

However, it seems impossible for the holding company to exercise management control over the builder during the workout period as the company has already promised to relinquish management control over its shares, and consent to the reduction and disposal of shares.

The trading of Taeyoung's stocks has been halted on the main Korea Composite Stock Price Index since March due to its negative net asset balance. (Yonhap)