Government – U.S. AIG Second Investment in Hyundai Investments

The government and the U.S. AIG consortium agreed to sign a memorandum of understanding (MOU) for the joint investment of a total of 2 trillion won to the three Hyundai firms including Hyundai Investment Trust and Securities, Hyundai Securities, and Hyundai Investment Trust Management.

Lee Wu-Chul, a bureau director of the Financial Supervisory Commission (FSC), announced yesterday, ``AIG will invest 600 billion won directly to Hyundai Investment Trust and Securities and 400 billion won and 100 billion won indirectly through Hyundai Securities and Hyundai Investment Securities respectively. The government will also invest 800 billion won directly to Hyundai Investment Trust and Securities and 100 billion won to the Hyundai Investment and Trust Management.``

Consequently, AIG will be the largest stockholder among the three companies by holding 55 percent of the share of Hyundai Investment Securities, 29 percent of Hyundai Investment Trust Management, and 29.4 percent of Hyundai Securities and therefore hold the right of management of the three companies.

Hyundai Securities held a board meeting to decide to assign the preferred stocks to the AIG by 10 percent, discounted at 8940 won per stock.

AIG will invest 400 billion won to Hyundai Securities at first to obtain 29.4 percent of shares and will re-invest the money to Hyundai Investment and Securities in addition to the 100 billion won that had invested to Hyundai Investment Management.

The government and AIG will complete the detail negotiations and conclude the final contract by October and invest the entire sum by November.

Particularly, the government offered the call option to AIG for three years from one year after the completion of the investment.

In addition, to prevent the Hyundai group from the bank industry, MOU includes the regulation that blocks the sales of the share to the Hyundai group and the former and incumbent personnel of Hyundai. The government will invest in the two Hyundai financial units, including public funds raised for the financial restructuring and funds secured from bond issued by the Korea Securities Finance Corporation. However, the government is planning to buy the securities and the leases of 1.08 trillion won and sell them later to resolve the evaluation gap about the potential insolvent of Hyundai Securities judged by the government and AIG.

In addition, the government is expected to face the sever opposition of 26 thousand minority shareholders who will suffer the devaluation and the loss of their shares by the investment of public funds and the low price sales of Hyundai Securities shares.

Lee Hoon dreamland@donga.com