9 Conglomerates to Start Selling Off Affiliates Next Month

Creditor banks have signed agreements with nine conglomerates to improve the business groups` shaky financial structures to speed up the selloff of their affiliates from next month.

Creditors, however, decided to sign such agreements with two other companies slated for restructuring in this year’s second half depending on their performance, since they are deemed capable of improving their financial structures through self-rescue measures.

Hence, the creditors will push for the restructuring of financially weak conglomerates through the strategy “nine plus two.”

A ranking source from a financial authority said yesterday, “A review of the financial situations of 45 highly leveraged conglomerates found 11 are on shaky ground,” adding, “Among the 11, creditor banks will sign financial agreements with nine first and wait to see the situations of the other two deemed capable of improving their financial structures.”

Most of the nine groups subject to the financial agreements saw their debt ratios, or aggregate debt to owner equity, surge since they aggressively pursued mergers and acquisitions over the past one to two years. A business group with construction and financial affiliates saw its debt ratio surge 100 percentage points to 250 percent last year due to the expansion of its real estate business.

Conglomerates with sound debt ratios but low profitability are also subject to the financial improvement agreement. A business group in the IT sector posted more than 300 billion won (315 million U.S. dollars) in net profit in 2007, but suffered a net deficit of five trillion won (3.44 billion dollars) last year.

Creditor banks are adjusting with the nine groups the details of the agreements, which focus on the sale of affiliates, disposal of assets including real estate, industrial readjustment by industry and region, and capital increase.

The two groups exempt from the agreement this time saw their financial structures deteriorate due to temporary factors, including the weak won and an industrial slump of their businesses, but will highly likely see things improve. Creditors will determine whether to sign deals with the two before year’s end after examining whether they improve debt ratios and operating profit ratios.

legman@donga.com