Future of Hyundai uncertain

The eye of market watchers is now focused on the future of Hyundai Engineering & Construction. Creditors sent an ultimatum to Hyundai that they will let it go under and be placed under court receivership if the company fails to pay the maturing promissory notes and overseas loans on its own. So, the market is watching how long Hyundai can survive.

Hyundai officials claimed that the company is not on the verge of bankruptcy, as debt was rolled over for two months. However, market watchers are pessimistic about Hyundai's future.

HEC's debt is estimated at about 5.4 trillion won. Of the total, borrowing from financial institutions totals 3.5 trillion won, which breaks down into 2.4 trillion won from banks and 1 trillion won is from secondary financial institutions. Creditors agreed to roll over the loans. Still, Hyundai's burden is heavy. Hyundai has to pay 90 billion won of maturing BWs from offshore markets and needs to monthly pay around 200 billion won of maturing promissory notes. Its operating profit is nearly 800 billion won, but it would be difficult to solve the problem of a deficit that amounts to 200 billion won.

Even if Hyundai is able to sell its Seosan farm at 220 billion won as proposed by the government, it will take 1-2 months to get paid for it. And it hasn't much assets that the company can cash. Also, nearly a half of former honorary chairman Chung Ju-Yung's ownership of 2.7% in Hyundai Motor is held as collateral. Analysts say that Hyundai might not survive for more than a month unless chairman Chung Mong-Hun sells its stocks of other Hyundai affiliates and injects the fund into HEC to increase its capital.

The support from his family, which has been repeatedly demanded by the government, doesn't seem easy. Chung Mong-Koo, chairman of Hyundai Motor, has left for China on a business trip. Also, he recently moved his office to Hyundai Motor's new premise in Yangjae-dong.

The family meeting scheduled for Nov. 3 was canceled. An aide of the Chung family said that large shareholders cannot use the company money as they wish and that there is no guarantee that HEC will survive with the financial injection. Nevertheless, Chung Mong-Joon reportedly is studying ways to give a helping hand to HEC through Hyundai Heavy Industry, which still is an affiliate of Hyundai Group, under the legal framework. Hyundai Heavy Industry still has 180 billion won in surety obligation provided to HEC, so it is concerned about the construction company's crisis.

Lee Byong-Ki eye@donga.com