Creditors of South Korean builder Keangnam Enterprises, currently under a debt workout program, said Friday they have rejected the company’s request for additional financial support and a debt-to-equity swap scheme.
The company was to file for court receivership later in the day.
Last week, the cash-strapped builder had asked for an additional 110 billion won ($99.2 million) in operating funds after the creditors, led by policy lender Export-Import Bank of Korea, had poured in 2.2 trillion won for its rescue.
Keangnam Enterprises, which has been put in a state of impaired capital, was also denied its request to swap 90.3 billion won worth of convertible bonds for new shares.
Stock trading of the company’s shares has been suspended as of March 11.
Keangnam Enterprises is under prosecution investigation on suspicion of embezzlement. Its office was raided last week, and the probe is believed to be linked to scrutinization of “energy diplomacy” by the previous Lee Myung-bak government. During his years in office, companies launched expansive business projects to secure energy resources.
The builder faces allegations that it embezzled money from a state-led Russian oil exploration project that was suspended in 2010 after disappointing results.
Out of the 35 billion won it received for the overseas resources project, Keangnam Enterprises allegedly misappropriated 10 billion won.
The builder had been struggling in the red in recent years amid a prolonged slump in the local housing market, suffering annual losses of 182.7 billion won and 310.9 billion won in 2014 and 2013, respectively.
On March 17, Sung Woan-jong, the head of Keangnam Enterprises, said he would give up his managerial rights in hopes of persuading creditors to continue supporting the company. Sung is facing suspicions of pocketing the investment money for his political activities when he was a lawmaker.
The former head has been banned from leaving the country, and is set to be called in for questioning as early as later this month.
The prosecution probe on Keangnam Enterprises came a day after the Park Geun-hye administration called for stern measures to root out corruption and ill practices as part of efforts to push for economic progress in the country.
The prosecution will likely widen its investigation to include financial authorities as the state auditor found that the Financial Supervisory Service had meddled in the creditor banks’ decision on the builder.
In January, the FSS had allegedly forced Shinhan Bank, the biggest creditor bank for cash-starved Keangnam Enterprises, to make a decision in favor of the company’s largest shareholder, or the head of the company, according to the Board of Audit and Inspection of Korea.
Sung constantly demanded the creditors provide additional investments to make up for the growing losses, instead of carrying out a capital decrease.
After the FSS pressure, the creditor banks decided to invest 630 billion won into Keangnam Enterprises in the following month.
“We are inspecting various sides of the FSS’s role related to Keangnam Enterprises’ workout program,” said a BAI official. “But nothing has been decided yet.” (Yonhap)
