Kumho Tire acquisition: problems on both sides

Wednesday 12th April 2017 | 0 Comments

 

Park Sam-koo says he won’t acquire a controlling stake in Kumho Tire from creditors unless they provide a definitive answer on specific conditions of sale. In a statement, Kumho Asiana has given the Korea Development Bank until 17 April to do this, otherwise it will not exercise its right of first refusal.

According to The Korea Herald, the bank told Kumho Asiana that Park must exercise his right of first refusal by 19 April in order not to forfeit the sale to Doublestar Tire. In order to raise funds for buying back the 42 per cent share in Kumho Tire, Park had requested that creditors allow him to form a consortium of strategic investors. However, creditors voted to disallow a consortium unless Park submitted a detailed plan regarding the funding, and, as The Korea Herald reports, the creditors have yet to answer questions from Kumho Asiana regarding specific conditions of their agreement with Doublestar Tire.

Kumho Asiana states that investors won’t participate unless the creditors give prior consent to form a consortium. The Korea Herald adds that the company views an attempt to acquire the shareholding with the help of financial investors alone a “potential risk with huge influence” for the entire Kumho Asiana Group.

Meanwhile, doubts have emerged over Doublestar Tire’s own ability to finance the acquisition. The Korea Herald writes that the Chinese tyre maker has formed a five-member consortium for the purpose, and this has reportedly brought a total of KRW 223 billion (£156.2 million); the remaining KRW 720 billion (£504.4 million) is to be leveraged from banks.

As the Seoul-based publication explains, this means Doublestar Tire will be required to pay around KRW 35 billion in interest per annum, assuming the minimum interest rate of around five per cent. “Such a highly-leveraged deal is raising concerns whether Doublestar would be able to bear the burden, considering its weak finances. Doublestar’s net profit stood at 9.6 billion won in 2015, while other consortium members are said to have insufficient cash reserves.”

In such a case, adds The Korea Herald, Kumho Tire would have to take on Doublestar Tire’s debt after the deal’s closure, using its cash reserves to payback interest or increase its pay-out ratio.                    sg

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