Cell Phone Maker Files for Bankruptcy

VK, a mid-sized cell phone manufacturer, has finally gone bankrupt.

A VK official said on July 7, “The 1.78 billion won debt maturing on July 5 could not be repaid by July 6, and so the company finally went into bankruptcy.”

VK failed to repay a 6.3 billion won bill last month and was working with its collaborating firms and creditors to overcome the management crisis when this final bankruptcy was decided.

The company is planning to revive itself through court receivership, application for composition and disposal, but its future seems unclear.

VK was founded in 1997 by Lee Cheol-sang, a former president of Seoul National University’s student council, and his student activist colleagues, and started out as a cell phone battery maker. The company switched to manufacturing cell phones in 2002.

Competing with its low priced phones in the GSM (Global System for Mobile Communication) market, the company made a net profit of 12 billion won in 2004.

However, due to a direct stumble from a decreasing won-dollar exchange rate and low-price marketing hits from major cell phone makers such as Nokia and Motorola, the company’s management began to rapidly worsen. Ever since its deficit of 64.9 billion last year, cash flow has not been running smoothly.

Meanwhile, Korea Exchange designated VK as a supervised stock that day. Accordingly, all purchasing and selling of VK shares will be suspended for three days until July 11.

Because VK has already funded a total 13.7 billion won through two paid-in capital increases, damage to individual investors is expected. As foreigners and institutions sold massive amounts of company shares since word of a possible insolvency broke out at the end of last year, 87 percent of VK shares is currently held by individual investors.

Investors will be given a last opportunity to sell off company shares from July 12 to July 21, and a major price slump is expected during this transaction period.

The closing price for VK stood at 545 won on July 5 as transactions were suspended starting July 6 due to the bankruptcy. VK will be taken down from the KOSDAQ list on July 22, a day after the sell-off ends.

Sun-Mi Kim TK Sohn kimsunmi@donga.com sohn@donga.com