Taeyoung to sell cash cow to shore up ailing construction arm

South Korea’s medium-sized business group Taeyoung Group said on Wednesday it is near to selling its cash cow logistics unit to shore up its flagship company Taeyoung Engineering & Construction Co. (Taeyoung E&C) in a liquidity squeeze caused by high financing costs and stalled construction projects.

TY Holdings Co., the group's holding company, has almost reached an agreement on the terms and conditions with the prospective buyer of Taeyoung Industry Corp., its logistics arm.

The deal will close upon completion of due diligence and other formalities.

Taeyoung Industry, founded in 1975, is a core unit of Taeyoung Group. Its operations are based in South Korea’s major logistics hubs of Ulsan and Pyeongtaek.

It runs grain silos, liquid cargo tank terminals and other logistics businesses. It has posted stable profits since 1990. In 2022, its operating profit reached 9.5 billion won ($7 million) on sales of 39.4 billion won.

Its equity capital stood at 131.9 billion won as of the end of 2022.

“The proceeds from the sale will be used entirely to resolve liquidity problems at Taeyoung Construction,” a TY Holdings official said.

“We will do our best to provide financial support (to Taeyoung E&C) by selling other prime assets.”

Additionally, Taeyoung Group's major shareholders are said to be preparing to inject private money into the ailing construction arm, while putting other major assets such as golf courses up for sale.

Taeyoung Group has been speculated to be in a liquidity crunch due to heavy liabilities related to real estate projects. Coupled with sharp interest rate hikes last year, the deteriorating property market has put a halt to some of its development projects or delayed them.

Moreover, it is saddled with more liabilities than other domestic builders, given that it has raised financing for the entire process of some construction projects from land purchase to development and construction.

By comparison, its local peers shared the construction costs with real estate developers.

Construction projects, for which it is responsible for the entire process of financing, represent 27% of its revenue of 1.6 trillion won in the first half of this year.

The balance of its contingent liabilities amounted to around 2.5 trillion won as of end-June, roughly evenly split between the projects, on which ground was broken or not.

The figure excludes the loans related to completed projects and those for which it has raised the whole-process financing.

Last month, Taeyoung Group issued a statement to deny market rumors about liquidity problems at the construction arm, saying it is making groupwide efforts to support the company and changing its project financing structure.

It also warned of stern action against the spread of unfounded rumors, including reporting them to the regulatory Financial Supervisory Service.

On Sunday, Taeyoung E&C Chief Executive Woo Cheol-sik resigned for unspecified management reasons, nine months after taking the helm.

It is understood that a successor will not be appointed for the time being.

Write to Yoo-Jung Lee at yjlee@hankyung.com
 


Yeonhee Kim edited this article.