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Analysis of Hyundai`s self-rescue policy

Posted August. 13, 2000 20:11,   


The Hyundai crisis, which threatened the stability of the financial market for 20 days, has, for the time being, been rectified.

It looks as though Hyundai`s settlement proposal has been agreed on this time for the sake of earning actual profit in exchange for the new economic team withdrawing its demand for personnel clearance. The Hyundai side has justified its compliance by not accepting the withdrawal of a family deity, which they have fiercely resisted as a point of pride.

Meaning of settlement proposal:

The greatest significance of the announced proposal is that the management discord between the two brothers, Chung Mong-Koo and Chung Mong-Hun, which began with the severance of Hyundai`s automobile affiliate last March, has ended. The clash between the two brothers forced Korean and foreign investors to flee Hyundai and eventually caused the entire conglomerate to lose credibility. Now, a barricade has been established to prevent the two brothers` frustrations from erupting into disputes between the affiliates. And, with the settlement of former Honorary Chairman Chung Ju-Yung`s shares, the key point of their conflict has been resolved.

As it is planned that Hyundai`s heavy industry division will soon be separated from the affiliates, it has become possible to greatly alleviate the deep-seated trouble within the group, in which one company`s crisis echoes through all the affiliates, which are all tied to each other. It looks as though the financial market will, to some extent, recover its stability, as the liquidity problem of Hyundai Engineering & Construction (HEC) will be partially solved with its debts reduced by 1.5 trillion won and the company entering organizational restructuring. HEC`s liquidity problem shook confidence in each affiliate and paralyzed the financial market as a whole. Also, the paralysis of the market forced leading corporations that had nothing to do with Hyundai to suffer from extreme funding difficulties.

If HEC implements comprehensive restructuring, it is expected that the financial market will regain its stability, bringing the stock market and the fund market back to life and helping corporations breathe again.

Remaining problems:

There is nobody who believes that the entire Hyundai nightmare has disappeared from the financial market as a result of the announcement of the settlement policy.

Trouble spots that could lead Hyundai to further crises remain here and there. The first is whether HEC can survive with the rest of the group. Construction industry experts said given that the construction industry is experiencing a depression as a whole, it is doubtful that HEC, which still has loose management and inefficient manpower operation customs, can succeed. The experts emphasized that if specially-acted restructuring was not implemented, HEC would inevitably experience financial difficulties. If the defects of Hyundai Investment Trust grow worse or if the semiconductor boom unexpectedly ends, plunging Hyundai Electronics Industry into a recession, the whole of the Hyundai Group will undergo another crisis.

Business with North Korea a variable:

The Hyundai side is confident that its business projects with North Korea, which require over 10 trillion won, will be executed through foreign capital inducement or by forming a consortium. However, if the Hyundai side`s calculations are wrong and investors turn their backs on the group, Hyundai affiliates, which invested 500 billion won in North Korea ventures, will suffer heavy losses.

Chairman Chung`s Health is Also an Important Variable:

If Chairman Chung`s condition grows worse and discord between the brothers resurfaces, or if many guardians who are faithful to the owners instead of the corporation itself gain power, it is very clear that investors will walk away from Hyundai eternally. In such a case, Hyundai will likely repeat the mistakes of Daewoo.