The Seoul government on Wednesday demanded that Hyundai and its family owners should contribute Won1,200bn ($1.08bn) to help rescue the group’s debt-laden investment trust, whose problems have unsettled South Korean financial markets.
Lee Ki-ho, the presidential economic adviser, said that Hyundai, Korea’s biggest conglomerate, should accept primary responsibility for recapitalising Hyundai Investment Trust & Securities (HIT), the nation’s third biggest investment trust.
Once the group had paid its share, the government would extend loans at market rates to HIT, which needs an estimated Won2,500bn. Seoul would also ask the International Monetary Fund to delay HIT’s repayment of a Won3,000bn bridge loan due at the end of the year, Mr Lee said.
The tough conditions reflect a dispute between Hyundai and the government on who should bear the financial burden for saving HIT, which has delayed a rescue package.
“Hyundai Investment is too big to let go. It would leave the bond market in disarray and cause share prices to fall sharply,” said David Cotterchio of Nomura Securities in Seoul.
The government said the family of Hyundai group founder Chung Ju-young should provide their personal funds to bail out HIT if the investment trust’s two main shareholders, Hyundai Electronics and Hyundai Securities, refused to do so.
Hyundai said the government demands were unreasonable because most of the personal assets of the Chung family were illiquid since they consisted of property and stock holdings.
Hyundai Electronics, which holds a combined 52 per cent stake with Hyundai Securities in HIT, said it could not offer more funds to the trust because minority shareholders, including foreign investors, would sue the company for potential losses.
The Korean group argues that it has already done its duty by providing more than Won500bn to recapitalise HIT in January, when it was forced to write off losses on bonds issued by the Daewoo group, which collapsed last year.
It believes the government should give low-interest loans to HIT because, it claims, officials encouraged it to take over the ailing investment trust several years ago in a state-sponsored rescue, an interpretation that the government contests.
Analysts said a financial rescue of the trust by Hyundai would not bankrupt the group. “The government could take a harder stance by nationalising Hyundai Investment, which is arguably in the interests of Hyundai Electronics shareholders,” said Brian Hunsaker, research head at Dresdner Kleinwort Benson.