South Korea’s largest conglomerate Hyundai bowed to government pressure Thursday and announced a plan to bail out its troubled financial arm.
Hyundai said group chairman Chung Mong-Hun would offer his equity holdings in unlisted Hyundai companies, valued at 26 billion won (23 million dollars), to help clear the debts of Hyundai Investment Trust and Securities Co.
Chung will also offer his stakes in unlisted affiliates worth more than 1.5 trillion won as collateral for debt payments, it said.
In addition, the group has pledged to put up 1.7 trillion won in unlisted stock as collateral for the investment trust company, said Kim Dae-Soo, head of the group’s restructuring team.
“This plan will help stabilize the market,” Kim said, adding the collateral could be cashed in if the investment trust company was unable to solve its woes by the end of the year.
The plan followed a govermnment warning the market would deliver a dire judgement against the overstretched conglomerate if its controlling family refused to take reponsibility for losses by the investment arm.
Hyundai responded Thursday it would take responsiblity for the investment trust’s capital erosion, estimated at 1.2 trilion won, by selling off shares or unlisted affiliates.
It hopes to raise a total of 3.3 trillion won by 2002, including 200 billion won in foreign investment, 400 billion won through public rights offerings, and 700 billion won from the disposal of Hyundai Investment Trust’s stakes.
The investment company promised to realize 600 billion won by disposing its holdings of beneficiary certificates.
Hyundai said it would ask for government support if its measures fail to ease market jitters.
But Chin Dong-Soo of the Financial Supervisory Commission said the government would not extend a bailout loan to Hyundai till the last.
Finance and Economy Miniser Lee Hun-Jai welcomed the plan. “I believe the plan will be endorsed by the market.”
The plan boosted the stock market, with Hyundai shares edging up.
Analysts, however, expressed doubts over wheter the rescue plan would be implemented.
“Investors seem doubtful about the feasibility of the rescue plan,” an LG Securities analyst said.
“They questioned the value of the unlisted stocks that Hyundai promised to put up… and it would take a while to register the unlisted subsidiaries and sell the stocks.”
The market had remained weak untill Thursday, sparking fears that a lack of reform action by Hyundai could scare away foreign investors who have already reduced their portfolios in South Korea.
Hyundai’s woes were triggered when the government excluded Hyundai Investment Trust from its planned injection of five trillion won into ailing investment trusts.
Investment trusts, including Hyundai, have been in trouble over their exposure to the Daewoo conglomerate, once the country’s second largest until it collapsed last year.