Following recent attempts to bail out the SK Global, creditors are asking what assurances they can reasonably have that any new financing would not be subjected to a repeat of past financial failures. What has changed at SK Global since the scandal came to light?
Unaccounted Trillions Missing from SK Global International creditor banks complain that the report by Samil accounting fails to address the whereabouts of the KrW4.4 Trillion missing from SK Global. This has also raised the suggestion that the liquidation value of SK Global may be significantly higher than initial reports suggest. Until there is a full and proper accounting of the method, manner and destination of SK Global's losses, it is impossible for creditors to undertake a meaningful evaluation of the commercial justification for a bailout.
The Management At The Company Has Not Changed Despite the conviction of 10 SK Global executives for accounting fraud on Friday 13 June, all of them have yet to resign. Hana Bank's CEO, Kim Seung-yu, who leads the domestic creditor bank consortium, stated last week that despite his conviction chairman Chey Tae-won still enjoys the support of the domestic creditor banks to maintain his position and influence over SK group companies. It is unlikely that foreign creditors share the same confidence in the SK leadership.
Prominent Domestic Creditors Remain Unconvinced Korea's largest financial institution, Kookmin Bank, has not overlooked the above concerns indicating that it prefers to accept 30% of its loan value in a cash buyout from the other creditors, rather than taking its chances in a bailout of SK Global. Kookmin is not alone in this view, with Woori Bank also expressing similar reservations.
Analysts Challenge Credibility of Bailout Plan Independent financial analysts question the assumptions underlying the bailout plan being proposed by the domestic creditor bank consortium. An independent report produced by one of Asia's leading securities companies, CLSA, enTitleMainMaind "SK Corp Rescue Plan For Global" raises serious questions about the viability of the bailout plan. In particular, the report points out that in order for SK Telecom to provide the increase in EBITDA required, it would likely need a 10-fold increase in its business with SK Global. Furthermore, the Fair Trade Commissioner in Korea stated that they would very closely scrutinise intra-group transactions between SK Telecom and SK Global to make sure that any transactions are made on an arms length basis. Even if they wanted to, it would be very difficult for SK Telecom to favour SK Global in any transactions.
SK Telecom Distances Itself From Bailout The bailout plan for SK Global is built around a projected increase in EBITDA of over 200%. The major share of this increase is planned to come from trading with SK Telecom. However, the board of SK Telecom last week rejected a request to underwrite any increase in business with SK Global, stating that it would not engage in one-sided transactions.
The issues facing the creditor banks are not dissimilar to those facing SK Corp as both a creditor and shareholder of SK Global. "Refloating the SK Global ship with the same crew, and the source of the leaks remaining unidentified and unaddressed, can only lead it to founder once again" said Mr James Fitter, chief operating officer of Sovereign Asset Management.
No accounting has yet been given of where the money missing from SK Global has gone. There is a growing recognition that a failure to identify and resolve the causes of these massive losses will put any continued financial support at risk of being lost in the same manner.
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