Hyundai faces test of survival

The liquidity crisis at Hyundai Engineering and Construction was triggered by some domestic banks' collection of loans from the company, as it is likely to be included in the list of target companies for liquidation.

What is worse, stock prices of Hyundai Heavy Industries and Hyundai Merchant Marine -- which the company plans to sell to raise operating funds -- have fallen in half. Hyundai might not be able to raise 500 billion won of the 1.5 trillion won the company had planned to raise.

As government sources recklessly said that the loans could be converted to capital investment in Hyundai, it frustrated the market, and creditors hurriedly asked Hyundai to submit an additional self-relief plan. The new plan includes introduction of 165 billion won in offshore loans by offering Chung Ju-Yung's stock holdings as collateral, sale of HEC's stake in Hyundai Asan to raise 45 billion won and raising 80 billion won by offering convertible bonds that will be purchased by Hyundai affiliates.

Korea Exchange Bank said that Hyundai might raise only 522.3 billion won in the self-relief plan the company announced in August to raise 982.4 billion won. If that is the case, the company would be short 466.5 billion won from 988.8 billion won that it needs between October and December for debt payment.

With the new self-relief plan, however, Hyundai would have 114.5 billion won in surplus fund at the year¡¯s end, according to the creditors. Also, Hyundai is expected to enjoy 808.7 billion won in operating profit with 458 domestic construction orders and 128 overseas projects. So both government officials and creditors see that Hyundai will be able to survive if it successfully lowers its current debt of 5.5 trillion won to the 4 trillion won level by the year's end.

Still, some bank officials warned that Hyundai would survive only if the self-relief plan is carried out.

"Just like the sale of Hyundai Heavy Industries stocks, Hyundai's liquidity crisis could re-emerge if the plan is not carried out properly," an official at a creditor bank said.

Analysts point out that the recent question of converting bank loans to equity investment in Hyundai was mentioned too early because it has to be used as a hidden card for resuscitation of Hyundai. All in all, the government and creditors have decided to watch Hyundai's self-relief plan, and it is expected that the question of depriving Hyundai of the right of the company's management will be concealed for the time being.

Hong Chan-Sun witness@donga.com