Debt Surges by 115.5 Billion Won in Three Months... Why JoongAng Ilbo Is Now Considering Selling Management Control [Why&Next]

Debt of 400 Billion Won... Cost Cuts and Asset Sales Not Enough
A Decisive Move to Secure Creditor Approval for Workout

JoongAng Ilbo, which has applied for a workout (corporate restructuring), has presented its self-rescue plan to creditors, playing the high-stakes card of selling its management control stake. The company is unable to repay debts that have reached unmanageable levels under its current financial situation. This move is also being interpreted as an effort to provide creditors with a justification for approving the workout process.

Excluding Management Control Sale, 62.1 Billion Won Secured... 400 Billion Won in Debt Due Within 3 Years

According to the investment banking industry and other sources on July 2, JoongAng Ilbo has proposed three main self-rescue measures to creditors: cost reduction, asset sales, and the sale of its management control stake. Immediate gains from cost reduction are estimated at 7.7 billion won. Key steps include a hiring freeze, partial return of executive salaries, retirement of some executives (labor cost optimization), streamlining newspaper production, and reviewing investment expenditures. The company also proposed ways to increase revenue, most notably expanding the apartment elevator media business "Town Board," outdoor advertising, and digital paid subscription services. Asset sales are also planned. JoongAng Ilbo aims to sell shares of wholly owned subsidiaries, which it says will net 15 billion won after offsetting liabilities. Additionally, the sale of 825,000 square meters of real estate near Yeonpo Beach in Taean, South Chungcheong Province, as well as factories and delivery offices, would generate 39.4 billion won in liquidity after collateral repayment. The total from these measures is 62.1 billion won.

On June 19, the day JoongAng Ilbo applied for the workout, the company received an early repayment request from Hanyang Securities for commercial paper worth 22 billion won. Unable to make the payment, JoongAng Ilbo ultimately defaulted. The measures outlined above may be sufficient to cover the Hanyang Securities commercial paper, but JoongAng Ilbo’s total debt runs into the hundreds of billions of won. As of the first quarter of this year, the company’s borrowings and bonds amounted to 405.4 billion won, all of which must be repaid within three years. Of this, 223.4 billion won—55% of the total—must be paid back within one year. Notably, this amount has increased by 115.5 billion won from 289.9 billion won at the end of last year. During this period, JoongAng Ilbo borrowed 42 billion won from banks by pledging various assets, including shares and accounts receivable in ContentreeJoongAng and Town Board JoongAng, and Kakao convertible bonds, and borrowed an additional 3.2 billion won from its subsidiary, JoongAng Ilbo USA. The company also suffered a loss of 1.6 billion won on dollar-denominated private bonds borrowed from foreign financial firms due to a higher won-dollar exchange rate.

Management Control Sale Used to Persuade Creditors, ‘Pain Sharing’ Likely to Continue Post-Workout

Given that JoongAng Ilbo cannot repay its debts without selling its management control stake, the company has offered creditors a clear incentive. On July 10, the Council of Financial Creditors will decide whether to initiate the joint management process. Only with approval can the creditor-led workout process begin. By putting the management control sale card on the table first, JoongAng Ilbo has demonstrated its commitment to normalizing management to its creditors.

If the sale of the management control stake goes through, the equity value of JoongAng Ilbo will be virtually zero. The company’s enterprise value is estimated between 157.2 billion and 209.6 billion won. Last year, JoongAng Ilbo’s EBITDA was 26.2 billion won, and the EV/EBITDA multiple typically applied in media company or newspaper acquisitions is between 6 and 8 times. The equity value is calculated by subtracting net debt from enterprise value, but as of the end of last year, net debt stood at 260.9 billion won. Even using the higher multiple, the result is negative, meaning the stake essentially has no value.

In this situation, a typical distressed M&A procedure would be followed. First, the major shareholder’s stake would be reduced (capital reduction), lowering the value of existing shares. The major shareholder would lose management control, which would pass to the creditors. If a buyer is found, the creditors would also carry out a capital reduction on their shares, further lowering equity value. During this process, the creditors would convert loan claims into equity (debt-for-equity swap). The acquirer would then take over the company by participating in a paid-in capital increase through a third-party allotment. For example, after a 100-to-1 capital reduction in 2014, former Dongbu Steel owner Kim Junki lost management control. In 2019, creditors executed an 8.5-to-1 capital reduction and a 605 billion won debt-for-equity swap. KG Group and Cactus PE then participated in a 360 billion won capital increase, acquiring new shares and management control, and Dongbu Steel was reborn as KG Steel.

To initiate the joint management process on July 10, the consent of creditors holding at least 75% of the total financial claims is required. Securing agreement from key creditors is therefore crucial. If the necessary consent cannot be obtained, alternative restructuring measures must be considered. Once the joint management process begins, steps such as due diligence and the formulation of a corporate improvement plan will follow. If a buyer for JoongAng Ilbo is found, the acquirer is expected to sit down with the creditors and demand "pain sharing" through principal write-downs and debt-for-equity swaps.

This content was produced with the assistance of AI translation services.