Creditors agree to revive HEC with 2.9 trillion won involving debt-for-equity swaps

Creditors of Hyundai Construction and Engineering (HEC) agreed Thursday on supporting a total of 2.9 trillion won, which includes an early debt-for-equity swap amounting to 1.4 trillion won and additional 1.5 trillion won, to save the company from a liquidity crisis. Creditors, made up of 35 banks and non-banking financial institutions, held a meeting at the Korea Federation of Banks in central Seoul and decided to keep HEC afloat through the conversion of the company`s debt into equity and the offering of fresh loans at the earliest possible date. Under the decision, they will first turn 1.4 trillion won worth of debts into equity and infuse additional liquidity worth about 1.5 trillion won in fresh loans, of which 750 billion won would be generated by the issuance of convertible bonds (CBs) and the remainder through capital increases. CBs will be up for sale in the market but creditors plan to take over those left unsold. However, observers say that the CBs are actually state-backed ones because the Korea Credit Guarantee Fund will stand security for the bonds.

Creditors also decided to force large shareholders to give up their managerial control along with a capital reduction to lighten the burden of losses on current shareholders. However, chances remain that Chairman Chung Mong-Hun may make a comeback as a large shareholder after securing enough stakes through the purchase of CBs later. Financial Supervisory Commission Chairman Lee Keun-Young also opened the possibility of his comeback saying that Hyundai affiliates could take over the CBs. But at a meeting with reporters following the creditors` meeting, Kim Kyung-Rim, president of Korea Exchange Bank (KEB), a main creditor of HEC, only said that the new management will be appointed at a shareholders meeting later.

Creditors decided to offer 390 billion won in emergency loans to HEC between Thursday and Friday. Eight creditor banks will share the burden with Korea Development Bank giving 130 billion won, KEB 104 billion, Hanvit Bank 46.8 billion and Cho Hung Bank 31.2 billion. These loans are to be repaid through new loans or proceeds from the issuance of CBs.

Hong Chan-Sun hcs@donga.com