Salvage the Salvage OperationThe government seems bent on extending the life of Hyundai one way or another, but the methods being used concern us because they diverge from principle and show a lack of planning. Recently Hyundai Construction, following government guidelines, used second down payments due on apartments under construction as collateral to borrow 150 billion won ($116.8 million) from a bank, but on Wednesday the deal was stopped by the state-run Korea Housing Fidelity and Insurance Corp. because it already owns bonds guaranteeing those payments. The fact thatthe government has gone against its own principle of not putting more new funds into saving Hyundai is a problem, but the bigger problem is that in its rush to help, the government did not even bother to find workable methods.
The government has also surreptitiously extended the terms of repayment of loans from bank and other financial institutions to Hyundai Construction from the original year-end deadline to the end of June. Speeding up the deal whereby the Korea Development Bank took over Hyundai debentures was also aimed at salvaging Hyundai.
The debentures from Hyundai electronics and Hyundai Construction alone amount to 5 trillion won. Hyundai accounts for the majority of the to 8 trillion won in debentures at the KDB. In end, if Hyundai defaults, the bank and the Credit Guarantee Fund will be in big trouble and ultimately the citizenry will have to pay. On Wednesday, Hyundai Electronics announced 1.4 trillion won self-help plan, but market response was cool. This tells us that on its own, Hyundai cannot save itself. Hyundai looms large in our economy, so we do not regard the government’s effort to save it as completely wrong. Policies can be flexible, so the government could allow a year, say, for Hyundai to clean up.
But we cannot save it by ignoring sound principles and rushing in without the proper preparation. If funds are made available for corporations that follow a workout plan, then that plan had better be right for the corporation in question and execution must be carefully supervised. Incidents such as trying to use the same collateral for two sets of bond issuances must not be allowed recur.
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