BENEFITS UNDER THE CORPORATE REORGANISATION PROCEEDING
Halla Engineering and Heavy Industries (Halla) has been a member of the Halla Group, one of the major Korean Chaebol, until the company went bankrupt on 6 December 1997 and filed a petition for the commencement of the Corporate Reorganisation Proceeding with the court.
Then, Halla group entered into a restructuring consulting agreement with Rothschild Inc, a consulting firm, which after having evaluated the equity and liquidation value of Halla proposed to establish a company "RH Engineering § Heavy Industries Lid" (RHHI) to take over all outstanding assets and debts from Halla All outstanding debts were to be repaid through bridge loans to be arranged by Rothschild after a debt restructuring including debt forgiveness and interests exemption.
The court approved the plan with consent from the creditors on 16 November 1998. Among the creditors, the major banks of HEHI as of 31.12.97 had significant government ownership and one of them has been financially supported by the Korean government following the economic crisis of 1997.
However, the debt restructuring through bridge loans as proposed by Rothschild failed to find foreign or domestic investors. Consequently, the receiver appointed by the court prepared a Revised Reorganisation Plan, which provided for adjustment of restructuring terms and was approved by the court on 16 August 1999. Adjustment of restructuring terms mainly included conversion of 100 billion won into equity72 in addition to the forgiveness of debts and accrued interest under the first plan - extension of principal repayments- delegation of Halla management to HHI and provision of guarantees by Hyundai Heavy Industries
Pursuant to the plan, the company RHHI acquired from Halla Heavy Industries, the shipbuilding and construction equipment business units thereof on 18 September 1999.
On 27 October 1999 the debt-equity swap was made and on the same date RHHI was renamed Samho Heavy Industries Co., Ltd. The principal shareholders of Samho after as of 31.12.1999 were the following73:
|Name of shareholder
|Korea Exchange Bank*
|* Financial institution in which the GOK owns an interest
The list of shareholders indicates that the company is now practically owned by Korean financial institutions, the largest shareholder being the Korea Asset Management Corporation (KAMCO), a 100% governmental institution. In fact most of these institutions are either government owned or controlled.74
Finally and following the provisions of the revised plan, Samho has entered into a trusteeship agreement with Hyundai Heavy Industries Co Ltd (HHI) effective on 29 October 1999 under which HHI provides management services for a fee equal to 10% of operating income plus actual costs incurred In this regard HHI has provided guarantees of approximately won 1,183 billion for Samho's bank loans. This guarantee can be considered as a considerable risk for Hyundai, given the poor profitability previous to bankruptcy, although Samho pledged as collateral for this guarantee a substantial portion of its property, plant and equipment.
SUMMARY OF THE BENEFIT
The total benefit allocated to Samho during the Investigation Period pursuant to the program and the debt restructuring is estimated at won 2,063 billion or USD 1,575 million75 and can be summarised as follows:
- debt forgiveness
- debt-for-equity swap of won 100 billion
- interest forgiveness
- conversion of short tem debt into long term debt
72 As provided in the Samho 1999 audited financial accounts
73 As provided in the Samho 1999 audited financial accounts
74 As of 31.12.2000 GOK's ownership in the following financial institutions amounts to: KEB 43.17%, Chohung Bank 80%.
75 Based on the exchange rate of 26.03.2001: 1310 won/USD