Kumho Asiana Group Chairman Park Sam-koo has been at odds with the Korea Development Bank (KDB) and other creditors of Kumho Tire over the terms of his right to buy back Korea’s second-largest tire maker.
Park has been calling on the creditors to allow him to form a consortium with other corporate entities to take back control of Kumho Tire, saying that he cannot raise nearly 1 trillion won as an individual to purchase a 42.1 percent stake in the tire maker.
The Kumho chief said he would give up his buyback right unless creditors change their mind, claiming that Kumho Tire would suffer if Double Star Tires, a mid-tier Chinese tire maker, controls the firm.
However, the KDB, headed by Chairman Lee Dong-geol, has refused to permit Park to transfer the right to a third party, saying that he has to acquire the 42.1 percent stake as an individual.
On Monday, the KDB and seven other banks signed a stock purchase agreement (SPA) with Double Star, which made an offer to buy the Kumho Tire stake for 955 billion won ($840 million).
They plan to inform the Kumho chairman of the sales price and other conditions. Park will then have to let creditors know within 30 days whether he will pay a higher price or give up his right to buy the company back.
“At this point, we cannot change the rules,” a KDB official said. “We have always said Kumho chairman can set up a private company and borrow money from financial investors to buy the Kumho Tire stake. But he cannot buy the stake through a third party or mobilize Asiana Airlines and other group units.”
However, Kumho Asiana has been pressing the KDB and other creditors to allow Park to establish a consortium so that he can more easily raise the 955 billion won.
“It would be quite a huge financial burden if the chairman borrows money from financial investors,” said Yoon Byong-chul, Kumho Asiana Group’s chief financial officer (CFO). “So, Park needs to form a consortium with strategic partners. If he cannot do so, he will give up his buyback right.”
The Kumho chief reportedly has to pay a higher interest and accept other unfavorable conditions if he borrows money from banks, brokerages and other financial institutions. This is why he has been trying to draw funds from business partners and other corporate entities that are willing to lend him money on more favorable terms.
Kumho Asiana has not received any official response from the KDB, concerning its request, according to Yoon, who said the bank should treat everyone equally.
“While allowing Double Star to form a consortium with five other companies for the acquisition of Kumho Tire, the creditors refuse to allow Park to do the same. This is not fair,” the CFO said. “If the chairman is allowed to establish a consortium, he can easily raise the necessary funds. In addition, Kumho Tire will be better off if it continues to remain part of the Kumho Asiana Group.”
The KDB and other banks acquired their stake in a debt-for-equity swap in 2010 when Kumho Asiana suffered a severe liquidity shortage. They then signed an agreement to negotiate first with Park when unloading their stake.
Besides four plants in China, Kumho Tire operates three plants in Korea and one each in Vietnam and the United States. In 2016, the company had 2.95 trillion won in sales and posted a 120 billion won operating profit.