Korea rejected a rehabilitation
plan for Hyundai Investment Trust & Securities Co. and warned the
firm will be denied government help unless parent Hyundai Group,
Korea’s largest conglomerate, does more to revive the ailing unit.
The Financial Supervisory Commission views the trust
company’s existing plans as inadequate, said Park Hyun Sup, a
spokesman for the agency, with the FSC having asked for “stronger
and more realistic” steps to turn the unit around.
“Hyundai should come up with tangible plans the (stock)
market will accept,” Park said.
Hyundai Investment, like many other Korean trust firms, is
struggling with the legacy of the nation’s 1997 and 1998 economic
crisis which caused many companies to stop paying out on their
corporate bonds, a traditional investment for the trust industry.
To strengthen its capital base, Hyundai Investment has said
it plans to raise 1.2 trillion won ($1.1 billion) this year by
selling 600 billion won worth of its stock holdings, attracting
200 billion won worth of foreign capital and earning 400 billion
won in its current fiscal year. In the next two years, the company
hopes to raise another 2.2 trillion won through similar steps.
Now, Hyundai Investment said it would heed the government’s
orders for a new rehabilitation plan, to replace the one announced
“We’re now revising the plans. We’ll announce stronger
measures soon,” said Kae Young Si, an executive at Hyundai
Lee Ki Ho, an aide to Korean President Kim Dae Jung, said
Monday that one possible option for Hyundai Group companies would
be participation in a new share sale by a Hyundai Investment
Hyundai Electronics Industries Co. and Hyundai Securities Co.
— two major shareholders of Hyundai Investment — agreed to buy
the financial unit’s new shares in the coming months, Yonhap
Television News reported, citing an unidentified FSC official.
Hyundai’s founder Chung Ju Yung and his family also agreed to
government requests to contribute to the bailout, the report said.
The electronics unit said it now owns a 27.6 percent stake in
Hyundai Investment as it recently sold 8 percent to a foreign
investor. Hyundai Securities Co. owns 24.2 percent of the
Hyundai Group is under mounting pressure to change as the
government tries to maintain the pace of financial and corporate
reform, even after President Kim’s ruling party lost outright
control of the National Assembly in the April 13 elections.
The group, which handles about one sixth of Korea’s total
exports, cut its debt-to-equity ratio to below the government-
imposed 200 percent target last year only by selling new shares
worth 13 trillion won, rather than by selling marginal businesses
Lee Hun Jai, Finance & Economy Minister, said recently the
government would only offer cheap loans to cash-starved Hyundai
Investment if the group stepped up its restructuring efforts.
Hyundai Investment’s paid-in capital has been completely
eroded by the industry’s crisis, and the company’s liabilities
exceed its assets by 1.2 trillion won. That has prompted the firm
to seek 2 trillion won of government loans to keep it afloat.
The government last week said it will funnel a combined 5
trillion won into two other struggling trusts — Daehan Investment
Trust Co. and Korea Investment Trust Co. — in May, though
authorities have signaled that assistance can only be expected if
a company has exhausted all other possible fundraising avenues.
The government is urging Hyundai Group to sell some of its
main businesses and use the proceeds to help bail out the cash-
strapped financial unit, reported the Seoul Broadcasting System, a
television service. Hyundai declined to comment on specific plans
recommended by the government.
Separately, the Chosun Ilbo newspaper reported that the Chung
family, which founded the Hyundai Group, may offer their stock
holdings in group companies as collateral in return for loans to
Hyundai Investment, which estimates it lost about 400 billion won
in the fiscal year ended in March 2000, and owes financial
institutions at 3.5 trillion won.
After falling in early trade, shares in Hyundai companies
rebounded amid optimism that the government’s preferential loans
will be granted soon, easing Hyundai Investment’s debt problems.
Hyundai Electronics rose 1.1 percent to 17,800 won, Hyundai
Securities rose 0.9 percent to 8,330 won and Hyundai Motor Co.
rose 1.9 percent to 10,650 won.