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Wrong ideas about the market?

Posted November. 05, 2000 11:53,   


The government's resolve to clear the business field of all non-viable companies is firm. Those seen without hope will be closed down.

Hyundai Engineering and Construction has not put up much opposition to the court receivership plan proposed by the government. However, it is frustrating to see that the market does not fully understand.

Financial Supervisory Commission chairman Lee Keun-Young said Sunday that the closures of non-viable companies necessitated great effort, yet many have misjudged the efforts made by them. Based on their grievance, the Financial Supervisory Service has publicized an informative announcement titled, "Eight Misunderstandings about the Market."

As the FSS has insisted, there is a possibility that the market has misunderstood the government's intention due to being misinformed. However, the market represents the collective-judgment of a great number of people. It does not represent the judgment of one or two persons. Many have judged that the government's decision concerning certain companies with signs of non-viability, such as HEC, is an effort toward resuscitation of non-viable companies because the government has given evidence of such.

HEC, Ssangyong Cement: Resuscitation or closure?:

The FSS laments that the market has misread and considered its efforts as resuscitation of the two companies. FSC chairman Lee reiterated that the two companies have been given opportunities to formulate self-rescue plans by the end of this year, but without any additional funding.

In addition, should any hint of non-viability surface with the companies unable to meet their obligations, they would be put on strict court receivership. However, the FSS has given the two companies an option of capital reduction and debt-for-equity swap should the major shareholders agree. While stressing closure and bankruptcy proceedings, the FSS has kept an option open that could led to resuscitation, leading to the misunderstanding.

Moral hazard of banks and myth of ¡®strength in size¡¯:

Soon after the government's announcement of the planned closures of companies, many have charged that companies such as K.E.C. International, with much salvageable assets, made the blacklist. At the same time, companies such as HEC and Ssangyong with immense debt and lack of capital savings for debt repayment leading to great losses by the banks are being resuscitated. However, the FSS has stood by its decision and stated that the creditors considered the future potential of the companies and flatly denied the possibility of any moral hazard of the creditors or the politicians.

Only companies under workout programs will be closed:

Of the 52 blacklisted companies, 43 companies have been considered non-viable previously and are currently under the government¡¯s workout program. Companies new to the non-viable list number only nine. The FSS has stated that it would not be possible to always place new companies as targets of closures while ignoring the known ones.

Companies unable to pay even interest on debts did not make list:

Of the companies under scrutiny, 287 could not even make interest payments through normal operations. It is difficult understand why they escaped being blacklisted. The FSS claimed it would be erroneous to consider only the ability to pay interest without a comprehensive review of the company.

Construction companies appear targeted:

With so many of the companies in the construction field making the list, many observers criticize that the current round non-viable business closures in fact amount to a crackdown on the construction industry.

The FSS said that the construction industry has experienced a 30% decrease in work since the economic crisis, while at the same time, the companies flooded the market. Through the current proposals, FSS hopes to bring greater competitive edge to those surviving in the construction field. The FSS further claimed that rather than considering the field in which the companies provide service, the possibility of placing them on more on viable grounds was considered.