Debt Swap, Cash Set For Hyundai Bailout

Hyundai Engineering & Construction's creditors agreed Thursday to provide the debt-ridden builder with a 2.9 trillion won ($2.2 billion) bailout, including a 1.4 trillion won debt-equity swap. The creditors plan to take control of the company, removing the management right of the largest shareholder, Chung Mong-hun, through a capital write-off, and to replace the firm's top management.

Some 35 lenders to Hyundai Construction, including the main creditor Korea Exchange Bank, will exchange 1.4 billion won, nearly a third of the company's 4.5 billion won debt load, for stock. They will also buy 750 billion won of convertible bonds and 750 billion won of fresh shares issued by the builder.

A special meeting of shareholders will be held to vote for a capital write-down, which will precede the debt-equity swap. The largest shareholder's equity value will be cut to zero, while the capital owned by minority shareholders will be written down in part.

"The bailout was decided on the condition that Chung Mong hun of the Hyundai founding family should completely withdraw from management," said Jin Nyum, deputy prime minister and minister of finance and economy. "If Mr. Chung does not yield the management right, we have no choice but to place the construction firm under court receivership."

"Creditors will replace the management, so that the company quickly resumes normal operation," said Lee Keun-young, chairman of the Financial Supervisory Commission, adding that legal action is being considered against Mr. Chung and top Hyundai officials.

by Kim Won-bae