Hyundai rescue entails internal chaos

Hyundai announced that it will raise funds through dismantling of the group and contribution of personal property to save Hyundai Engineering & Construction (HEC).

The projected sale of Hyundai Merchant Marine's stake in Hyundai Heavy Industries (HHI) and Hyundai Electronics Industries (HEI) means early separation of Hyundai Heavy from the group. At the same time, it signifies that Hyundai Merchant Marine (HMM) will abandon its position as the group's holding company.

Chairman Chung Mong-Hun realized that it is impossible to solve HEC's financial trouble with the company's own resources and his personal contribution, so must utilize group-wide rescue efforts.

Meanwhile, HMM is strongly protesting the group's decision, and the group restructuring team is in a mess while announcing such a self-relief package, revealing that the group is suffering from chaos internally. So it is unclear whether the plan will be carried out as described.

If Hyundai Group sells its stake in HHI and HEI at Monday's closing price, it would be able to raise 551.4 billion won. However, HEC's share price fell below its par value, so it is expected that HMM might help HEC with its financial trouble by purchasing corporate bonds or commercial papers issued by HEC.

Currently, chairman Chung owns stakes in HEI (1.7%), HMM (4.9%), Hyundai Corp. (1.22%) and Hyundai Petrochemical (0.1%). He already offered his stock in Hyundai Logistics Co. Ltd. and Hyundai Information Technology as collateral in order to solve the insolvency of Hyundai Investment Trust. Unless Hyundai Investment Trust completes investment from AIG, he cannot exert his property right in the stocks of these two companies.

The combined value of stocks he holds in these four companies is estimated at about 82.77 billion won at Friday's closing price. Hyundai officials said that they would be able to finalize the amount of chairman Chung's personal contribution after other self-relief plans, including HMM's equity sale, are confirmed.

Hyundai officials have reversed chairman Chung's contribution of personal property, showing that the group is in an extremely chaotic situation internally. A group official said that there was confusion due to the lack of internal procedure regarding a comprehensive self-relief plan. But it is certain that the group is in a mess.

Lee Byong-Ki eye@donga.com