Bailed Out Builder Forecasts Profit, But Faces More Short-Term Woes

The 2.9 trillion won ($2.2 billion) bailout of Hyundai Engineering & Construction will enable the builder to break out the black ink for this year and will serve as a stepping stone for the firm's normalization in the long run, Hyundai and its creditor banks said Thursday.

According to a management consultant of Hyundai Construction, ADL, the 2.9 trillion won bailout, including 1.4 trillion won of debt to be swapped for equity and 1.5 trillion won of new investment by the banks, will increase the builder's debt coverage ratio to 1.3 and will lower its debt-equity ratio to 259 percent. The changed financial conditions will be good enough for Hyundai to return to normal operation, the firm's creditors said.

Hyundai Construction had 4.5 trillion won of debts at the end of last year; interest payments on the debt were 563 billion won in 2000. After the debt-for-stock exchange and the new investment, interest expenses will be reduced to 306.1 billion won this year.

A credit bank official said Hyundai Construction could earn a net profit for the year, considering that the builder had 430 billion won of operating profits on average for the years 1997 to 1999. Hyundai forecasts 6.78 trillion won of sales and 465 billion won of operating profit this year.

"The investment will provide Hyundai an opportunity to make its business systems reasonable," said Shin mun-young, a professor of business administration at Myongji College.

Some market observers said Thursday's bailout by creditors will not be felt until the second half of this year as the details of the swap are worked out. Hyundai's condition, therefore, might deteriorate further in the meantime.

"We missed chances to bid for 39 overseas projects worth $6.8 billion due to our liquidity problems," an official at the builder said. Some analysts said that the bailout itself does not guarantee the company can return to normal, stressing the importance of new management.

"Qualified officials are the most important asset of a construction firm," an analyst at Shinyoung Securities commented. "It can be a problem for Hyundai that a number of its important staff members left the company when its liquidity crisis began."

by Hwang sung-gun