Creditors support HEC

As creditors of Hyundai Engineering & Construction (HEC) have agreed to a debt-for-equity swap scheme, to participate in a capital increase (2.9 trillion won) and offer 390 billion won in fresh loans, it is analyzed that the construction company must have secured a firm basis for recovery.

However, some criticize that it is preference measure, raising a question if it is necessary to keep HEC afloat by pouring in 3.3 trillion won in public money. They pointed out that the construction business is a sunset industry with poor profitability.

Korea Exchange Bank officials analyzed that HEC`s borrowing would retract to 2.03 trillion won at the end of this year with the projected financing from 4.43 trillion won at the end of last year, adding that it will be able to generate 103.4 billion won in operating profit. The company financing cost would shrink to 306.1 billion won from the current 563.4 billion won.

LG Investment and Securities anticipated that HEC would be able to reach the break-even point next year. Kim Woong-Soo, senior research fellow at LG Investment and Securities, said that HEC`s interest payments would be slashed by 200 billion won this year and 550 billion won next year, thus posting 65.7 billion of profit in 2002. If there is no capital injection, HEC will suffer a loss of 75 billion won next year, he analyzed.

Kim also said that HEC`s financial costs will fall by 84 billion won this year and 164 billion won next year if it obtains 1.5 trillion won in fresh loans.

Lee Nam-Woo, managing director of Samsung Securities, said that creditors have decided to raise the amount of funding to 2.9 trillion based on a report by Younghwa Accounting Corp. that HEC`s insolvency could increase as a result of a precise assessment. ``If such an amount of funds is provided to HEC, the company will be able to survive,`` he said.

Lee Cheol-Yong lcy@donga.com