June 9, 2000 VOL. 29 NO. 22 | SEARCH ASIAWEEK

Are Hyundai's Problems Over?
By Laxmi Nakarmi

Now that Hyundai patriarch Chung Ju Yung (center) and his two sons -- Mong Hun and Mong Koo -- have agreed to release their death grip on the chaebol, has Hyundai escaped the fate of its mortally wounded competitor Daewoo? "Hyundai is no Daewoo," Finance and Economy Lee Hun Jai recently told Asiaweek. Well, he should try convincing traders of that. Share prices for various Hyundai firms have dropped anywhere from 30% to 60% in the past year.

Hyundai's problems accelerated in mid-May when two units of a competing chaebol -- Samsung Card and Samsung Capital -- refused to roll over about 300 billion won ($268 million) in short-term notes of Hyundai's they were holding. Samsung denies any ill intentions, and in fact the lenders were simply calling in the loans when they were due -- admittedly something it has not done in the past. Until now, they have been willing to renegotiate. But these things have a way of snowballing. Other lenders got nervous and Hyundai eventually wound up at the doorstep of the Korea Exchange Bank looking for help.

The group's total debt had been reduced to 36.1 trillion won ($32.3 billion) from 48.8 trillion won by the end of April, with long-term debt accounting for 65% of liabilities, according to KEB. Creditor banks proposed a 350-billion-won rescue package in return for sweeping restructuring and the resignation of founding patriarch Chung Ju Yung and some other executives.

With the whole kerfuffle dragging down the market, Financial Supervisory Commission chief Lee Yong Keun urged Hyundai to announce sweeping measures to restore the confidence of the market -- although he denied pressing Hyundai to dump the 86-year-old Chung. That good cop-bad cop approach only made matters worse. The company was blamed for driving the stock market down 6.1% on May 26 on news that KEB allowed Hyundai Merchant Marine and Hyundai Engineering increased overdraft privileges to overcome temporary liquidity crunches -- sort of like bailing out a sinking boat by pumping water back into the leaking hull.

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