More Worries about Economy

The delayed work-out of the insolvent large business shades dark clouds over the economic recovery in the second half of this year. Without removing the potential insecure elements, the government effort for the economic recovery by the expansion of the national budget expenditure will probably ends up in vain because the money that is supposed to flow into the healthy companies goes to the insolvent companies, breaking the flow of `the good circle of money`

When OECD, IMF, and other foreign investors evaluate the Korean economy, they primarily focus on the restructuring of the finance industry. Jin Nyum, the Economic Deputy Prime Minister remarked that the government would remove the insecure element of the market by the third quarter of the year. However, since the promise of the government authority has often been annulled, the distrust on the market grows.

The Eye of Typhoon, Hynix Semi-Conductor. The Hynix Semiconductors, which started recovering with the support of the liquidity as much as 5 trillion and 100 billion won by the creditors and the issue of overseas DR of 1.25 billion dollars, now faces again a difficulty in the plunge of the semi-conductor prices in the international market. The creditors are preparing supportive measures up to 2 trillion won including the self-support of 1 trillion by the Hynix. However, if the semiconductor price would not recover, nothing is going to work. It`s too late for the banks to give up Hynix because they have already loaned about 3.72 trillion won besides the CBs and potential supports in the future.

A recent report of Salomon Smith Barney shows that the Hynix Semiconductors is securing the long-term liquidity by the asset sales, debt re-adjustment, and the vendor financing. If everything goes well, the necessary fund will be 42.37 billion won in the 3rd quarter, 27.46 billion won in 4th quarter of this year, 25.24 billion won in the 1st quarter, -17.95 billion won in the 2nd quarter, -49.65 billion won in the 3rd quarter, and 75.90 billion won in the 4th quarter of next year. Expecting the slow recovery of the semiconductor price in the 4th quarter of this year, the report graded the Hynix as `out-perform` for the investment opinion and the `speculation` for its risk degree.

Daewoo Motors Beyond the Economic Reasoning. The U.S. General Motors maintains its position to buy the good assets of the Daewoo Motors and its sales and AS chains, excluding the controversial Bupyong factory. However, the Korea Development Bank and the government stick to their plan to sell the Daewoo Motors including the Bupyong factory as a package, concerning the local economy and the protests of the laborers.

Jung Keun-Yong, the governor of the Korea Development Bank, blamed the political circle, saying ``the negotiation to resolve the Daewoo Motors issue has been delayed by some other reasons rather than economic reasons.``

To complete the negotiation by September as Deputy Minister Jin Nyum promised, a business partner should make a big concession and the KDB is definitely in a disadvantageous position.

Hyundai Investment Trust and Securities Co. Ltd. in the Final Round. The sales of HITS to the U.S. AIG is virtually confirmed, except for the negotiation on the price of the 16.2 percent stocks of the Hyundai Merchant Marine Co. Ltd. AIG offered to pay 15,000-16,000 per stock but HMM wanted to sell their stocks by over 22,000 won per stock. The alternative way to complete the negotiation would be the participation of AIG in the capital increase with consideration of the Hyundai Securities Co. Ltd.

In that case, the investment of AIG would not flow out of the Hyundai group but the problem is how to invest the capital increase with consideration of the Hyundai Investment Trust and Securities Co. Ltd. without damaging the business value of the Hyundai Securities Co. Ltd.

No News About Sales of Financing Companies. The overseas sales negotiations of the Seoul Bank and Korea Life Insurance have continued on for three years without any clue to solve the problems. Seoul Bank is on the sales negotiation with the Deutsche Bank Capital Partners but the negotiation is confined in the simple investment rather than the strategic management. The sales negotiation of Korea Life Insurance with the U.S. Merrill Lynch is still in the veil.

Kim Do-Young nirvana1@donga.com