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Dongbu Steel, creditors agree on recovery plan

2014/06/30 19:03

SEOUL, June 30 (Yonhap) -- Dongbu Steel, one of South Korea's largest electric arc furnace operaters, and its creditors reached a preliminary agreement Monday on a plan aimed at getting the flailing company back on its feet.

The agreement comes after drawn-out negotiations between the sides and calls for stringent self-help measures from the company.

In exchange, the 11 local creditors effectively agreed to give Dongbu more breathing room to recover.

The pact, which will likely be finalized Tuesday, means that the firm will avoid debt restructuring, with lenders obliged to buy bonds set to mature next month.

Financial sources said the steelmaker has to cope with 70 billion won (US$69.2 million) worth of bonds that mature in early July.

The total sum parent Dongbu Group has to pay stands at 220 billion won.

The move will enable the company to avoid defaulting or finding itself strapped for money needed to run operations.

Talks were arranged by Korea Development Bank (KDB), Korea Finance Corporation and Export-Import Bank of Korea, with last minute negotiations helping to persuade Korea Credit Guarantee Fund to accept the conditions. While not a creditor, the latter's support is critical because it will provide support needed to alleviate concerns of commercial lenders.

"Delays occurred because it was only the guarantee fund that will bear the risks if the voluntary agreement fails to help the company," a source familiar with talks said.

According to state financial regulators, 2,795 private investors bought 108.3 billion won worth of Dongbu Steel shares, with the company also holding bonds valued at 6.5 billion won.

KDB sources said that due diligence will be carried out on the steelmaker once everyone agrees to the voluntary agreement scheme. This move will allow creditors to get a better grasp of the company's overall health. KDB has lent the most money to the steelmaker.

Besides the steelmaker, financial market observers said that Dongbu Group may now have to carry out sweeping reforms that could result in affiliates undergoing tough debt workout programs or even being put under court receivership.

There may also be moves to hold the chairman and founder of the conglomerate, Kim Jun-ki, responsible for the running of the business empire. There has been speculation that creditors will demand Kim and his family provide shares they hold in healthy firms, such as Dongbu Insurance Co., as collateral.

yonngong@yna.co.kr

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