DL Chemical and Hanwha Options, co-shareholders of Yeocheon NCC, have determined to transform loans of as much as 300 billion received into fairness investments inside this yr. Negotiations on uncooked materials provide costs acquired from Yeocheon NCC can even be finalized by subsequent month.
In accordance with the monetary sector on Nov. 13, DL and Hanwha are discussing normalization measures for Yeocheon NCC with these contents.
A senior enterprise neighborhood official concerned within the consultations between the 2 corporations defined, “There’s a set off clause requiring early reimbursement of bonds issued by Yeocheon NCC if the monetary construction is just not stabilized, so we’re focusing on debt-to-equity conversion inside this yr,” including, “Concerning the uncooked materials provide contract, we are attempting to conclude an efficient contract by subsequent month on the newest.”
Beforehand, DL and Hanwha every supplied emergency funds of 150 billion received to cowl Yeocheon NCC’s working fund settlements. Whereas the aim was to fill working funds with fast cost deadlines, the monetary construction truly deteriorated as funding assist was supplied within the type of loans relatively than capital will increase. Certainly, Yeocheon NCC’s debt ratio jumped from 338.04% on the finish of June to round 380% not too long ago.
The issue is that the bond administration contract clauses of a few of Yeocheon NCC’s public company bonds embody particular provisions requiring debt ratios to be managed inside 400%. Failure to adjust to this clause might set off early redemption dangers for company bonds because of occasions of default (EOD). Particularly, associated particular provisions are included in company bonds value 200 billion received, together with the 73-2nd public company bond maturing in March subsequent yr. Contemplating that debt ratios are confirmed primarily based on quarter-end figures, the debt ratio have to be introduced all the way down to a secure vary earlier than disclosing fourth-quarter monetary statements on the newest.
Concerning uncooked materials provide worth negotiations which have confronted difficulties, DL and Hanwha have determined to outsource the calculation of applicable costs to exterior consulting corporations. The 2 corporations plan to just accept the consulting outcomes and conclude last contracts inside this yr.
The uncooked materials provide worth contract is a core contract that determines Yeocheon NCC’s price construction and profitability. Yeocheon NCC provides petrochemical merchandise reminiscent of ethylene and propylene value 2.5 trillion received yearly to DL and Hanwha. Whereas the present contract expired on the finish of final yr and unit costs have to be recalculated, there was no progress in discussions for practically a yr as each main shareholders declare “low-price provide quantity has deteriorated Yeocheon NCC’s profitability.”
Nonetheless, negotiations are gaining momentum because the creditor group, led by the Korea Improvement Financial institution, Yeocheon NCC’s fundamental creditor financial institution, not too long ago ordered swift completion of negotiations. The Korea Improvement Financial institution reportedly made calls for to DL and Hanwha to “resolve the difficulty by outsourcing ethylene applicable worth calculations to 3rd events since discussions between the 2 corporations are sluggish.”
Market observers counsel that the Korea Improvement Financial institution has heightened strain ranges as credit standing dangers might emerge even after debt-to-equity conversion if Yeocheon NCC’s money movement turns into unsure because of negotiation delays. Yeocheon NCC’s credit standing is ‘A- (destructive)’, and additional downgrades would end in lack of A-grade standing. A Yeocheon NCC creditor group official emphasised, “I perceive that each corporations responded to the Korea Improvement Financial institution that they’d conclude exterior consulting contracts quickly to resolve disagreements,” including, “Since this can be a matter of belief with the creditor group, it could be troublesome for both DL or Hanwha to oppose consulting outcomes or delay contracts.”
Throughout the creditor group, there may be widespread view that whereas additional deterioration of Yeocheon NCC’s monetary construction has been prevented, extra pain-sharing efforts from main shareholders are crucial. Amongst industrial complexes topic to restructuring, enterprise reorganization discussions for the Yeosu industrial advanced the place Yeocheon NCC is situated are continuing most slowly. One creditor group official identified, “Though the Deputy Prime Minister and monetary authorities have issued warning statements a number of occasions, the enterprise neighborhood is just not transferring swiftly.”
