(Bloomberg) — Troubled developer Taeyong Engineering & Construction, which risks more project finance woes in South Korea, won support from creditors to begin debt restructuring talks.Thank you for reading this post, don't forget to subscribe!
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The builder of a post office, amusement park and a baseball stadium in Seoul’s financial district received support in the vote from creditors holding 96.1% of its total debt, according to a statement from Korea Development Bank, its largest lender, on Friday.
But the successful vote is the first step in a months-long restructuring process for the company, which had net debt of 1.8 trillion won ($1.4 trillion) as of September. KDB will set up a body to oversee the financial management of the builder, which is part of a larger group that also includes one of the country’s largest broadcasters. According to the KDB statement, the lenders want to advance construction projects already underway.
Taeyong revived memories of the Legoland amusement park developer’s default in 2022, which has pushed short-term corporate borrowing costs to their highest level in more than a decade. The case has sent authorities into damage control mode to prevent any fallout, with the Bank of Korea set to start raising interest rates in 2021 after other real estate loan-related crises heighten the sensitivity.
Taeyong struggled to refinance project finance loans, the same kind of short-term loans taken out by builders for construction projects that led to the Legoland developer crisis. To generate cash, Taeyong Group is selling assets and has also offered its lucrative stake in Seoul Broadcasting System as collateral, if needed, to get the green light from creditors.
After rising in anticipation of the deal, Taeyong’s shares fell as investors took profits on the news. The stock was down 13% as of 10:28 a.m. in Seoul on Friday. Taeyong’s 2024 won bonds were trading at a yield of 61.5%, down slightly from 97.2% before the restructuring was announced, according to Bloomberg-compiled data.
The authorities’ policy actions have helped prevent a downturn in credit markets this time, with yield premiums stable since the beginning of the year. But Korean real estate prices have fallen and elections in April are putting pressure on the government, which is lagging in one survey.
Korea’s finance minister pledged to step up a $66 billion program to stabilize the market if needed. Similarly, Governor Lee Bokhyun of the Financial Supervisory Service, which oversees the market, said there was a contingency plan in place to calm the market if necessary.
Yields on commercial paper, which rose as a result of Legoland’s troubles, have remained stable in recent days, well below their crisis-era peak of 2022.
Korea’s Finance Ministry said in a statement on Friday that authorities will strengthen supervision of major construction sites and take timely measures amid concerns about real estate project financing. He also said that financial markets are relatively stable.
After agreeing to start the process, creditors will have until April 10 to conduct due diligence of Taeyong E&C’s business. The deadline for agreement on the restructuring proposal is April 11, with a detailed plan to be signed within a month of that date. During those negotiations decisions may be taken on changes in the yield and maturity of the builder’s loan.
–With assistance from Finbarr Flynn, Wanwoong Choi and Yukyung Lee.
(Writes, debt figures in the third, shares and bonds in the sixth, Finance Ministry adds in the tenth paragraph)
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