South Korean tire manufacturer Kumho Tire Co. Inc., through no fault of its own, is either a) going through a “debt restructuring,” or b) a "debt rescheduling and corporate restructuring.”
The reason? Financial hardship on the part of its parent company, Kumho Asiana Group, which reportedly has debt totaling 18 trillion won ($15.4 billion dollars) compared to assets of 38 trillion won ($32.6 billion).
According to Reuters, Kumho Tire and its sister company, Kumho Industrial Co. Ltd., were put under creditor-led restructuring by Kumho Asiana because of “cash shortages from the conglomerate's previous expansion” -- specifically, the purchase of Daewoo Engineering and Construction.
The JoongAng Daily Korean newspaper reported that the rescheduling and restructuring was led by creditor banks.
Regardless, Kumho Asiana and its Asiana Airlines subsidiary have over-extended themselves. The Asiana Airlines group borrowed heavily to acquire Daewoo Engineering and Construction in 2006. Reuters says as part of the acquisition, the group agreed to “buy back Daewoo shares held by financial investors at a price far above current market levels” if certain conditions weren’t met.
They weren’t. Daewoo's stock price needed to reach 31,500 won a share by December 2009. As of Dec. 30, the stock was worth less than 13,000 won.
Because of its financial situation, the company has agreed to transfer controlling stake in Daewoo Engineering & Construction to Korea Development Bank, a leading creditor, according to JoongAng Daily.
Kumho Tire’s stock may been collaterally damaged by the actions of its parent company. It was selling for $4.19 a share on Dec. 23, 2009; the share price has dropped to $3.41 as of today. However, the price has been pretty steady over the course of the year:
12/30/08 3/31/09 6/30/09 9/30/09 12/30/09
$3.52 $2.94 $3.66 $4.97 $3.41
From 2003-2008, Kumho Tire increased its sales 228% to $2.2 billion.
Kumho, however, is not without financial woes of its own. Kumho will suffer a net loss for the third consecutive year in 2009. In addition, the Wall Street Journal reports that Kumho Tire will delay paying $9.4 million in December salaries “because of a temporary cash shortage.”
A company spokesman was reported as saying the payments will be made “in early January, when the company will receive payments from its clients.”
To see the official statement released by Kumho Tire U.S.A. Inc., click "Kumho: Business as usual in the U.S."
