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Hyundai Group Escalates Feud With Creditors

Posted June. 12, 2010 08:27,   


A feud between the Hyundai Group and creditors is intensifying over whether both sides will sign an agreement on improving the conglomerate’s financial condition.

The creditors, including main creditor Korea Exchange Bank, are considering halting new loans if Hyundai refuses an agreement. The group, however, insists that it will receive an assessment diligence after changing its main creditor bank.

A source at the creditors’ group said Friday, “If the Hyundai Group declines an agreement on improving its financial condition, we will consider a halt to roll-over of maturing debts and new lending.”

Hyundai borrowed 1.6 trillion won (1.28 billion U.S. dollars) from banks, of which 500 billion won (400 million U.S. dollars) will come due by year’s end. Creditor financial institutions, including Nonghyup, Korea Exchange, Korea Development and Shinhan banks, sent an official letter to Hyundai Monday warning of corrective measures according to bank supervisory rules if the group drags its feet in signing the deal.

Hyundai failed to pass an assessment on financial structure conducted through late April, and was singled out as an entity subject to financial soundness improvement. The decision was largely affected by 565.4 billion won (452 million U.S. dollars) in losses from the global shipping market slump last year to Hyundai Merchant Marine, which accounts for more than 60 percent of the conglomerate’s combined sales.

Once Hyundai was designated as subject to such an agreement, the group was required to sign the deal by the end of May. The group, however, angered its creditors by appealing the result of the evaluation.

“Korea Exchange Bank designated us as subject to such an agreement by disregarding the characteristic of the shipping industry in which companies borrow money by collateralizing vessels,” Hyundai said.

While the shipping market is recovering, the group said Hyundai Merchant Marine posted operating profit of 11.6 billion won (9.3 million dollars) in the first quarter. It also claims that it retains ample liquidity, including 1.5 trillion won (1.2 billion dollars) in cash-like assets.

Creditors, however, say the shipping company also suffered an ordinary net loss in the first quarter if considering financial costs. Even with the rebound in the global shipping market, they say Hyundai cannot be normalized without restructuring.

The financial industry concludes that Hyundai is preventing the formation of the agreement on improving its financial condition primarily to help Chairwoman Hyun Jeong-eun strengthen control by taking over Hyundai Engineering and Construction.

Once the agreement is signed, Hyundai must implement far-reaching structural reform, including the sale of affiliates. Accordingly, it cannot join the bid to take over Hyundai Engineering.

The conglomerate has agreed to repay 160 billion won (130 million dollars) in loans from Korea Exchange if it can change its main creditor bank. Hyundai said that since the main creditor bank has failed to serve its due role, it hopes for a reassessment on its financial structure by a different bank.

Korea Exchange and other creditor banks have rejected the request, however, citing lack of precedent.

Financial authorities say they could consider changing the main creditor bank if no loans are made, but that Hyundai needs to sign the agreement first. Thus, Hyundai’s demand will unlikely be accepted.

Creditor banks set Tuesday as the deadline and are raising the pressure on Hyundai, warning of sterner measures including a halt to new loans. In response, a Hyundai Group source said, “Korea is now an advanced nation and we don’t believe banks will stop lending. So we’ll continue discussion with creditors.”

peacechaos@donga.com nuk@donga.com