Hyundai faces its worst crossroads

The government and creditors of Hyundai Engineering and Construction Co. have expressed their strong will not to be dragged down any more by the firm, even preparing for the worst-case scenario of letting it go bankrupt.

As a result, the possibility has become much higher that the financially-troubled company might face a debt-for-equity swap through a reorganization or be put under court receivership, as the government and the creditors have threatened to employ the measures unless it implements self-rescue measures as promised.

The creditors insisted that they did not consider the debt-for-equity swap before a final bankruptcy of the nation's largest construction company, but the latest developments do not rule out the possibility.

If the company goes bankrupt, the creditors are most likely to deprive the Chung family of its managerial rights through a workout or court receivership, and to seek ways of normalizing it by selling its assets, among other measures.

The government and the creditors made it clear that the ball is in the court of HEC. Korea Exchange Bank, the main creditor, has asked the first and second financial institutions to roll over the firm's maturing debts, to no avail, because the debts that matured in October alone reached 140 billion won.

"Even if HEC requests creditors to offer new loans to it, the banks cannot do any more,¡± Lee Yon-Su, vice president of the bank, said. ¡°Now, it is up to Hyundai to raise a fund to pay maturing debts, and for this it should implement its own self-rescue programs."

The creditors strongly demand that the self-rescue measures should be accompanied by the major shareholders' efforts, such as the investment of personal assets by Chung Mong-Hun, chairman of Hyundai Asan, and borrowing from abroad with former honorary chairman Chung Ju-Yung's stake as collateral.

KEB vice president Lee on Tuesday officially demanded again that HEC sell its reclaimed land in Sosan as part of its self-rescue plan. The government also revealed that it "intends to purchase the reclaimed land at the publicly declared land value of about 300 billion won."

But Hyundai has not yet shown any positive response. An official of the creditor banks strongly denounced HEC.

"I feel even that HEC is playing a game with the government and the creditors in that it has its own self-rescue plan it can implement but is not presenting it," the bank official said.

The government openly asserted that it would strip the managerial rights from Chung Mong-Hun, chairman of the board of directors of Hyundai Asan in case the company's self-rescue measures are insufficient. If Hyundai rejects a debt-for-equity swap, the government will ask for court receivership.

"The Korea Exchange Bank, the main creditor of HEC, is asking the company to make self-rescue efforts that the market can accept,¡± a high-ranking official of the Financial Supervisory Service said Tuesday. ¡°Unless the self-rescue efforts are insufficient, the creditors will strip its owner of managerial rights through a debt-for-equity swap.

"The creditors will hold a meeting sooner or later to confirm the direction of handling of the HEC problem. If Hyundai rejects self-rescue efforts and a debt-for-equity swap, then court receivership of the company cannot be ruled out."

He made it clear that the creditors would confirm the plan to handle the HEC question in any form by Friday. The creditors also have prepared measures against a possible final bankruptcy on a judgment that HEC's self-rescue measures are not sufficient, it will have no alternative but to go bankrupt before long.

"We will seek ways to normalize HEC by forming a consultative council among creditors immediately after its final bankruptcy,¡± KEB vice president Lee said. ¡°The debt-for-equity swap can be carried out even after the company is placed under a workout program or court receivership."

Hong Chan-Sun witness@donga.com