HDEC, Foreign Debt Adjustment from Next Month

A meeting for general shareholders of Hyundai Engineering and Construction (HDEC) is planned for the day after tomorrow.

In this meeting, `The matter of 5.99:1 capital reduction` will be submitted, and the dispute among small shareholders on this matter is anticipated. An high-ranking official of creditors said that ``We acquired a total shares of 36-37 percent by getting proxies from small shareholders, including the shares of 24 percent from large shareholders.``

Because creditors already secured the shares over 33.3 percent needed to pass, the matter of capital reduction will be passed easily in the general shareholders meeting. But a furious resistance from small shareholders might be inescapable.

However, the meeting of general shareholders is just the beginning. More issues remain to be settled.

- Foreign debt adjustment

HDEC already used $ 0.4 billions of creditors investment by the end of March. It has uncovered the matured corporate bonds, and it has paid only for cost of goods and the genuine bills. Even if HDEC endures such efforts as asset sales of creditors and the reduction of costs, the time limit to prevent bankruptcy is allotted for the end of June. Therefore, the bankruptcy will be inescapable unless creditors supports 2.9 trillion won by the end of June.

Meanwhile, all overseas debts were settled, but a debt adjustment will begin for the share of losses. Total debts reach at $ 0.92 billion to $ 0.93 billion, among which foreign financial companies have $ 0.66 billion. And the rest of the debts is consisted of bonds with warrant (BW) and convertible bonds(CB). A debt adjustment focuses on the extension of the maturity and the reduction of the interest except debt-to-equity conversion.

- The Second Negotiation with the Investment and Trust Companies

Creditors` basic strategy is to finance 250 billion won from HDEC`s corporate bonds of 540 billion won, that the investment and trust companies possessed, and to take over 150 billion won among `new shares issued to be purchased`, amounting to 750 billion won.

On the contrary, the investment and trust companies maintain that it is impossible to purchase stocks with a credit fund. Instead, it will be possible to extend the maturity under the guarantee of Guarantee Insurance Institutions including Korea Guarantee Insurance Fund.

Hence, as an alternative, creditors are considering a `conversion of issue` to reissue corporate bonds of 540 billion won with 3 years-maturity, lowering the interest from 12 percent to 3.2 percent. This alternative plan means the share of losses almost equal to debt-to-equity conversion.

But since the cut-down of interest rate leads directly to the customers` losses of interests, it will be hard to accept.

- The Anticipation of HDEC`s Normalization

HDEC will revive again with the total capital 2 trillion won and debt ratio of 260 percent, if the support of fund is to be completed by the end of June. A high-ranking official of creditors said that ``Although Young Wha Accounting may find additional deficit in asset and debt evaluation of the company, it will take little effect on the overall debt ratio.``

The fate of HDEC is up to newly elected President Shim Hyun-Young`s ability to recover the business based on the fund supported by the creditors. But this is still up in the air.

Kim Do-Young nirvana1@donga.com