[Opinion] Leave `Hynix` to Market

The `Hynix Affair` broke out before even a week passed after the public broadcasting held the concert and all kinds of governmental organizations painted the town to publicize the achievements of the government, commemorating the graduation of IMF era. Denying the repayment of the corportate`s bonds, the Hynix declared the default that since it could not run the business with the current financial structure, the creditors should take care of the business.

The domestic and foreign credit rating agencies brought down the credit rate of the Hynix to the level lower than the junk bond, so that the stocks of the Hynix became cheaper than the cigarette price. The forecast, that the stock market would be boosted up by the reduced interest rate, missed the mark, and the stock prices of the financial institutions also fell down sharply. The stock index recorded the lowest for the last month.

With the promise to discuss the rearrangement of the debt on 31st delayed, the presidents of the creditor banks are seriously reconsider how to deal with the Hynix. In addition, the newly accredited U.S. Ambassador and the US minister of commerce warned that they would watch over how the Korean government will dispose of the Hynix. Now, the Hynix affair is threatening the whole national economy beyond the destiny of the individual company. Furthermore, it came to the front as a crucial issue directly connected to the national credibility, which shows the direction of the corporate restructuring and the will to practice the market principle of the Korean government, as well as the trade conflict, according to the method dealing with the Hynix.

Recently, the economy ministers including the Deputy Prime Minister kept maintaining that the government has never been involved in the Hynix affair, and it will take the court receivership, fully respecting the opinion of the creditors. But more serious problem lies in the fact that nobody believes that. Let alone the big deal process, the prompt acceptance system of corporate bonds, and the process of decision making by the creditors consultation committee, the government should keep the following principles in order to lessen the damage due to the Hynix and to appropriately build up the regulations under the market principle.

First of all, the government should establish the atmosphere in which the creditors are able to analyze and evaluate the Hynix without the intervention of the government. The reason which the Hynix has been regarded as `nothing more than a drop in the bucket` is that despite the Hynix created the fund of 1 trillion 600 billion won through the issue of GDR two months ago, the cash balance unbelievably is no more than 104 billon won as of the end of July. It is against the market principle and regulation to extend the repayment or to allow the debt-to-equity swap after lending hundreds of millions won only on the basis of the analysis of the Salomon Smith Barney whom the debtor Hynix entrusted. Therefore, the creditors need to thoroughly investigate the management activities and the financial situations of the overseas subsidiaries as well as the headquarters.

Secondly, the government should minimize the flaws on the equality and the efficiency by analyzing the impacts that the domestic corporate policies have on the domestic and foreign creditors. The foreign creditors already prepared to escape the special law for corporate restructuring which will be efficient on September 14th, by abusing the provision for prior redemption. The provision had been established when the Hynix was divided from the Hyundai group. And the investment companies also refused to take over the Hynix depending on the decision of the court. Although the serious conflicts have been raised among the domestic creditors due to the principle to share the burdens, the government does not have the ability and right to mediate the interests of the concerned parties. Therefore, it would be better to deal with the Hynix after the creditors establish themselves the principle to share the losses according to the market principle.

Thirdly, if the investigation on the Hynix will show that despite it has the productive capacity and the technological competitiveness, the current crisis was generated only by the problem in the financial structure, the Hynix should be revived. But it needs to deeply deliberate how to readjust the financial structure. If the additional loans fail to improve the financial situation of the Hynix, the government should take over the right of decision to the creditors so that they are able to put it under court receivership.

However, in this case, the government should know that it is the market principle that the creditors, supported by the public fund, thoroughly follow the Memorandum of Understanding (MOU), which they agreed with the Korea Deposit Insurance Corporation, and thus the individual financial institutions make a decision independently. And it is the best choice to overcome the trade pressure and to improve the national credibility.

Prof. Kwon Hee-Joon (Management Department, Kyung Hee University)