January 07, 2010
Let?s hope the bus doesn?t have Kumho tires on it
By: Bob Ulrich

Is it just me or does it seem like Kumho Asiana Group has thrown its subsidiary, Kumho Tire Co., under the bus in an attempt to dig itself out of financial distress?

That?s the impression I get. To recap, as 2009 wound down, South Korea-based Kumho Tire Co. was placed in what the Korean press calls a "debt work-out program" in response to financial problems faced by its parent company, Kumho Asiana.

Well, kind of. Here?s where it gets convoluted. Kumho Asiana, the eighth largest conglomerate in Korea, has a 14.6% equity investment in Asiana Airlines, which purchased Daewoo Engineering and Construction in 2006.

Asiana Airlines borrowed heavily to acquire Daewoo. According to Reuters, it agreed to ?buy back Daewoo shares held by financial investors at a price far above current market levels? if certain conditions weren?t met.

They weren?t. So in an attempt to appease debtors, Kumho Tire and its sister company, Kumho Industrial Co. Ltd., were placed under that ?debt work-out program? (i.e., put under creditor-led restructuring) by Kumho Asiana.

(For the company's definition of "work-out," click on ?Kumho: Business as usual in the U.S.?)

Kumho Industrial and another group subsidiary, Kumho Petrochemical, are both investors in Asiana Airlines. Kumho Petrochemical has a 47.3% interest in Kumho Tire Co., making it the tire company?s largest shareholder.

So the subsidiary (Kumho Tire) of one subsidiary (Kumho Petrochemical) is, in part, taking the fall for the failure of a subsidiary (Daewoo) of a subsidiary (Asiana Airlines) of another subsidiary (Kumho Industrial).

The Korean Daily News reported that major shareholders of Kumho Tire and Kumho Industrial ?said they will take responsibility for the mistakes and offered to contribute their own wealth, including shares, to help improve cash flow.?

That?s good news for Kumho Tire Co., which is expected to report consolidated sales of 2.885 trillion won (approximately $2.2 billion) in 2009. The company recorded consolidated sales of 2.882 trillion won in 2008.

By the way, Kumho Tire Co.'s overseas subsidiaries, including Kumho Tire U.S.A. Inc., are not subject to the work-out.

Kumho: Business as usual in the U.S.

South Korea-based Kumho Tire Co. was placed in what it calls a "debt work-out program" on Dec. 30, 2009, in response to financial problems faced by its parent company, Kumho Asiana Group (see "Financial woes burden Kumho Tire Co.").

In an official statement, Kumho Tire U.S.A. Inc., a subsidiary of Kumho Tire Co., said it is not subject to the work-out program. Here is the release in its entirety.

"Kumho Tire Co., headquartered in Seoul, Korea, has announced the company has entered into a 'work-out' procedure with creditors. The work-out is a unique procedure with creditors that does not involve the court system, whereby the company and creditors work together to address short-term financial difficulties.

"The work-out procedure is permitted to companies that are presumed to have a high possibility of business normalization but have suffered temporary difficulties in repaying loans to financial institutions. Many leading companies in Korea have previously experienced 'work-out.'

"Kumho Tires? overseas entities are not subject to the work-out. Kumho Tire U.S.A. operations will continue as usual during the work-out period."