How to evaluate the Hyundai situation

Hyundai remains in the eye of a typhoon. The ball is now in the court of the market. Hyundai Engineering and Construction managed to overcome a crisis that brought it near bankruptcy over the weekend. Without the help of financial institutions, the Hyundai affiliate raised enough money to sustain itself. It has extinguished the fire for the moment, until the end of next month when its loans mature. Nonetheless, the fundamental source of the fire has yet to be addressed.

The problem is the market. The future of Hyundai depends on how the financial market will react. There are strong opinions in the capital market that Hyundai-related stock prices are undervalued for its financial indices. The group has temporarily overcome its financial difficulties, so this may be seen by investors as the right time to invest. In contrast, there also are many investors who are determined to withdraw completely on this occasion, seeing the Hyundai problem as a chronic disease.

In particular, there are many people who are disappointed with Hyundai`s conflict with the government, the feud among its subsidiaries and its failure to keep its spin-off promise. The two conflicting forces within the Hyundai Group are expected to spark a fierce competition. Keen attention must be paid to how foreign investors evaluate the latest developments.

Another major variable is how financial supervisory authorities will deal with Lee Ik-Chi, chairman of Hyundai Securities and Investment, with regard to alleged illegal practices in the course of importing

foreign capital.

The combined financial statements of business conglomerates to be announced on July 31 could give rise to another storm. This will be the first time that pure financial statements will be unveiled from which the inside dealings among subsidiaries are subtracted. This is a result of an agreement between the government and the International Monetary Fund designed to increase transparency. The financial statements based on the new criteria are expected to paint a new picture of the credibility of each conglomerate. In particular, investors are required to closely monitor the businesses whose debt-to-equity ratios have increased.

Other important variables include the performance of the listed firms in the first half (to be announced around Aug. 15), how companies under workout programs are handled, the intensifying of investigations into improper trade, disputes over business trends and the question of holding people related to Daewoo Group`s bankruptcy accountable, including the issue of whether to prosecute former chairman Kim Woo-Choong.