Korea's Pantech on verge of bankruptcy, begs telcos for help

Country's third-largest handset manufacturer is facing liquidation if local telcos refuse to participate in a debt-for-equity swap scheme initiated by Pantech creditors.

Korea's Pantech is facing liquidation and will fold if local telcos refuse to be part of a debt-for-equity swap scheme initiated by its creditors.

The country's third-largest handset manufacturer owes SK Telecom, KT, and LG Uplus a total of 180 billion won (US$178.02 million) in receivable accounts, and will not be able to stay afloat unless the telcos agree to the rescue program, reported The Korea Times

Pantech CEO Lee Joon-woo said in a media briefing Thursday in Seoul the company urgently needs help to stay in business. "If local carriers refuse to join the 'cash-increase' plan led by our creditors, then we may declare bankruptcy... We have no time. Please help us."

The company is unable to seek financial help from investors because it is already weak financially, Lee said, noting that Pantech's potential closure would result in significant job losses among its component suppliers. "Pantech's brand recognition will be tainted... For the industry['s sake], we hope to get one more chance for survival."

SK Telecom, however, is doubtful financial support now can save the company base on its weak business standing. The telco is owed the largest amount, worth 90 billion won (US$89.01 million) in accounts receivable. A SK Telecom official told The Korea Times the carrier was "negative" about Pantech's outlook and it was unlikely to agree to participate in the rescue scheme. "We've already prepared for an exit strategy," he said. 

Pantech reported 6.7 billion won (US$6.63 million) operating loss in the first quarter of 2014.  

According to the report, Pantech's creditors will make a final decision on July 14 whether to continue or terminate a court receivership. Comprising Korea Development Bank and eight other local banks, the creditors had proposed converting the 480 billion won owed into capital to keep Pantech afloat, but only if the telcos agreed to participate in the rescue plan. 

Citing executives from the operators, The Korea Times noted that Pantech's expensive marketing campaigns to promote its Vega product line, comprising tablets and smartphones, failed to appeal to the carriers. It also attempted to market Vega to carriers in the United States but that failed to take off. 

An LG Uplus official said local carriers had a stock inventory of some 700,000 Pantech handsets.

"If local carriers refuse to join the 'cash-increase' plan led by our creditors, then we may declare bankruptcy... We have no time. Please help us."

Should Pantech exit the market, the Korean handset industry will be shared by Samsung Electronics and LG Electronics, with the latter expected to benefit most. 

Samsung, along with Qualcomm, has a 10 percent stake each in Pantech, but is likely also to be seeking an exit strategy as it itself is facing increasing competition from low-cost Chinese smartphone makers.

According to The Korea Times, several foreign smartphone manufacturers such as India's Micromax and China's Lenovo had sought out Pantech for a potential buyout, but no deal has been inked amid concerns about the Korean manufacturer's shaky financial status and market share. 

In a recent interview with ZDNet Korea , Lee said Pantech was gaining market share — inching toward a 15 percent share — and hot on the heels of the country's second-largest market player, LG. He said Vega Iron 2 was expected to help fuel its growth. 

In another  interview with ZDNet Korea , Pantech's UX team head Cho Jeong-woo said the company planned to differentiate itself by adopting strong color tones, as evident in its Flux 3.0 product line.