Hyundai Engineering & Construction barely escapes crisis

Hyundai Engineering & Construction (HEC) has barely escaped the crisis of finally being declared bankrupt. As HEC avoided the liquidity crisis, the government and the creditor group decided to push for a debt-to-equity swap through a workout program or a court receivership if the company continues to suffer financial difficulties without faithfully fulfilling its self-rescue plan.

In addition, to prepare for the possibility of HEC going bankrupt after all, they decided to set up a variety of measures, including the formation of a creditor bank consultative committee. The government and creditors seem to believe that HEC will find it difficult to stay afloat if it is continuously required to pay maturing debts without fulfilling its self-help plan, and in that case, the company should be dealt with based on market principles.

According to Korea Exchange Bank (KEB), the main creditor of HEC, Tuesday, the company faced a liquidity crisis after it failed to meet an initial deadline for the payment of 22.4 billion won of 72.6 billion won of maturing debts. But as it managed to pay the debts during the day, the company avoided being declared bankrupt.

HEC paid 1.98 million won out of 26.4 billion won that was due that day, and had the remaining 31.98 billion won worth of commercial paper rolled over. Lee Youn-Soo, vice president of KEB, said Tuesday in a news conference that the liquidity crisis was inevitable as Hyundai affiliates refused to purchase 80 billion won worth of HEC¡¯s convertible bonds, part of HEC¡¯s self-rescue plan, and financial institutions recollected 140 billion won of debts despite an agreement on their rollover.

Lee said that his bank urged HEC once again to implement the self-rescue plan faithfully through measures such as capital increase by large shareholders and sales of properties, but it is also preparing for the company¡¯s final bankruptcy in case the plan is not fulfilled properly. He said that the bank will form a creditor bank consultative committee and set up plans to normalize the company¡¯s business.

Regarding the issue, a high-ranking official of the Financial Supervisory Commission (FSC) said that if HEC fails to implement the self-rescue plan properly, the agency will seek ways of divesting its managerial rights through a debt-to-equity swap or court receivership. The official said that the FSC will determine HEC¡¯s fate by Nov. 3 at the latest. Meanwhile, the financial market showed signs of confusion initially at the news of HEC¡¯s default and the government¡¯s suspension of a workout program for Korea Express, but regained its stability later expecting that the events would influence the economy favorably in the long term.