Major corporations and financial institutions are assuming debts owed by construction companies in the form of stocks. Most of these debts are related to construction companies that have gone through workouts or corporate rehabilitation processes.
The creditor group often receives money that was originally supposed to be received in cash in the form of equity conversion. Even when receiving stocks, they do not receive the full value and recognize debts at stock prices much higher than market prices. There have been cases where construction company stocks traded at around 2,000 won were recognized at prices exceeding 160,000 won to offset debts. There are also cases where debts of about 20 million won are paid off with stocks valued at 1,590,000 won.
The overall number of stocks for construction companies has decreased due to capital reduction, stock mergers, and free cancellations by financially struggling construction companies. When the total number of stocks decreases, stock prices should typically rise correspondingly. However, many construction companies are recording operational losses, so their stock prices are falling even as the number of stocks decreases, forcing creditors to settle for inadequate compensation.
According to the Financial Supervisory Service and the construction industry on the 30th, Kumho Engineering & Construction announced on the 25th that it would issue new shares through a third-party allocation capital increase amounting to just over 6.9 billion won. The issue price per share is 160,900 won, and 43,165 common shares will be issued. The newly issued shares are expected to be listed and traded on May 12. The 6,945,248,500 won raised through this capital increase will be divided among Shinhan Bank (17,290 shares, 2,781,961,000 won), NongHyup (17,253 shares, 2,776,007,700 won), and DB Insurance (8,622 shares, 1,387,279,800 won).
All of these institutions are creditors of Kumho Engineering & Construction that agreed to the capital conversion. They received stocks after losses related to the debt assumption for the construction of the "Yeongjong Harmony" apartment project, which was developed in block 43-14, Woosungdong, Jung-gu, Incheon, and sold in 2007, were confirmed. While developing the Yeongjong Sky City project, the implementing company, Ito Construction, secured funds from the financial sector, guaranteed payments by Kumho Engineering & Construction. However, after Ito Construction entered corporate rehabilitation proceedings, Kumho Engineering & Construction (then Kumho Industrial) also entered workout, resulting in creditors being unable to collect the debts guaranteed by Kumho Engineering & Construction for over 10 years. The amount of losses that Kumho Engineering & Construction was obligated to pay creditors was only finalized on the 11th. Subsequently, the number of shares for capital conversion and the issuance price for new shares were determined, and the conversion was confirmed.
The issue is that the stocks of Kumho Engineering & Construction, which Shinhan Bank, NongHyup, and DB Insurance are receiving as debt instead, have a market price of 2,550 won based on the closing price on the 28th. The standard price of 6,041.2 won was determined by applying the weighted arithmetic average stock price from the past three to five trading days before the capital increase subscription date, applying a premium rate of 6,041.2% to that figure. Essentially, they are acknowledging 2000 won stocks at prices exceeding 160,000 won.
A representative from Kumho Engineering & Construction noted, "Kumho Engineering & Construction has undergone several capital reductions and other measures leading to a decrease in total stock count, and as a result, the number of stocks creditors can receive has also decreased," adding, "The capital conversion has occurred at the price agreed during the workout phase." Kumho Engineering & Construction recorded an operational loss of 181.8 billion won last year.
Dongbu Corporation also announced on the 25th the issuance of new shares for 318 shares through a third-party allocation capital increase. The issue price per share is 5,000 won, converting debt confirmed in the first quarter of this year into shares. GS Engineering and Construction will receive 318 shares at 5,000 won per share, essentially receiving debt of 1,590,000 won. Both companies jointly constructed access roads to the Yeosu National Industrial Complex and need to split repair costs, but the original amount GS Engineering and Construction was supposed to receive from Dongbu Corporation was 19.36 million won. However, due to stock mergers and cancellations during the corporate rehabilitation process, Dongbu Corporation reduced its share count, resulting in a decreased amount received by GS Engineering and Construction. Dongbu Corporation closed at 3,460 won on the 28th.
A representative from Dongbu Corporation stated, "As we entered corporate rehabilitation, we have capitalized on recovery debts," adding, "Recovery debts take a long time to be confirmed, so we are converting them into stocks as the debt amounts are finalized each time." Dongbu Corporation also recorded an operational loss of 96.9 billion won last year.