Struggles over Purchasing Hynix`s Bonds

Creditors and investment and trust Companies are quarrelling each other on taking over corporate bonds of Hynix Semiconductor, rumored in the stock market that the company will be under court receivership.

Creditors insist on that investment and trust Companies should take over newly issued corporate bonds of Hynix, worth 760 billion won (due in three years), sharing the loss.

Investment and Trust Companies, forced by creditors, suggested a compromise plan to underwrite corporate bonds of Hynix just under guarantee of Korea Guarantee Insurance Fund, despite it is impossible on principle to take over corporate bonds of a faltering company with customers` accounts, on 3rd night.

But creditors rejected this compromise plan because amounts of bonds to be taken over are too small and even the maturity period is too short, so that they still remained divided.

So, the possibility of court receivership is discussed again in the stock market, and government and creditors immediately respond to quench worries, saying that "there will no court receivership".

- Investment and trust companies being anxious about the possibly second Daewoo affairs.

An official of investment and trust company showed his worries that "purchasing corporate bonds of a faltering company with customers` money could cause repulsive responses. So, if the issue of soundness of investment and trust companies is raised again due to corporate bonds of Hyundai Group, large-scale selling bonds can take place just like the case of Daewoo affairs."

But government and creditors have a very rigid position. Investment and trust companies cannot help but underwrite certain amounts of 760 billion won.

An alternative purchasing the Hynix bonds with original accounts of investment and trust companies, and issuing Highyield (high risk, high return) bonds, has been raised, but it is recently pointed out that it is not feasible because it is hard to issue Highyield bonds.

Furthermore, investment and trust companies are hesitant as they have to finance 540 billion won of corporate bonds of Hyundai Engineering and Construction (HDEC). A director of a stock company prospected that "government arbitrated for investment and trust companies and stock companies to syndicate in the ratio of 15 : 85 at the point of purchasing of Daewoo`s corporate bonds. Therefore, should it be the case again?"

- Creditors no room for withdraw

Creditors insist on that investment and trust companies not be exempt while Hynix`s terms of payment is extended beyond 2003 and convertible bonds, net worth of 1000 billion won, are taken over.

`Lender of last resort strategy` has been debated that the plan for foreign financing fails due to investment and trust companies` exemption from syndication, the court receivership is inevitable.

Creditors is persuading investment and trust companies that if debt restructuring proposal suggested by Salomon Smith Barney (SSB) is taken to amplify equity, then current financial difficulty will be minimized, effectively improving credibility and early normalization of management will be followed. But the situation is not favorable.

Kim Do-Young nirvana1@donga.com