More Than 10 Biz Groups to Be Picked for Restructuring

Creditors will select this week for restructuring more than 10 conglomerates from among 45 business groups deep in debt.

The selected conglomerates must sign memoranda of understanding on improvement of their financial structure with creditor banks by the end of the month and undergo intense restructuring, including the sell-off of affiliates.

Financial industry sources yesterday said creditors will sign the agreements with 14 business groups that failed to pass last month’s financial assessment, and several other groups that passed but are highly likely to face deteriorating managerial conditions and are now conducting last-minute coordination.

A financial authority source said, “In principle, creditor banks must sign MOUs with conglomerates that failed to pass, but plan to include certain groups that run the risk of deteriorating business conditions, while excluding other groups that failed to pass due to temporarily increased debt ratios stemming from the characteristics of their industries."

“Conglomerates to be subject to the MOUs will be singled out early this week.”

Hence, creditor banks are excluding shipbuilders and companies focused on exports, which saw their debts ratios soar instantly due to the weaker won or higher oil prices, from the list of conglomerates subject to restructuring.

In contrast, those to be included are conglomerates facing a high chance of deteriorating financial structures due to the financial burden from excessive mergers and acquisitions, though they passed the financial assessment.

For instance, financial authorities say a conglomerate that bought a company when the latter’s share prices plunged under the condition that the latter repurchase the shares must undergo restructuring, even if the former has sustained a good financial structure.

Conglomerates subject to the restructuring campaign are lobbying creditor banks to exclude them from the list, while pushing to implement corporate restructuring. Several conglomerates recently put up affiliates for sale or issued massive volumes of corporate bonds to demonstrate that they can improve their financial health through self-rescue efforts.

Creditor banks, however, say such efforts are inadequate and are considering the suspension of new credit lines to conglomerates that reject signing the agreements.

Apart from corporate restructuring focusing on business groups, creditors will begin this week credit risk assessments on more than 400 other large companies. Those found to be financially weak will be subject to debt workout or exit from the market.

legman@donga.com