Hyundai chairwoman under siege

By Kim Tae-gyu

Staff reporter

Hyundai Group’s worst fear appears to be coming true.

Hyundai Motor is now openly saying that its takeover of Hyundai Engineering and Construction shouldn’t be ruled out.

Hyundai Group’s main creditor, the Korea Exchange Bank (KEB), is showing no signs of backing off from its demand that the conglomerate should pay off all its debts.

The picture is complicated. The group, led by Hyun Jung-eun, the widow of Chung Mong-hun, the fifth son of the later founder Chung Ju-yung, is engaged in a standoff with KEB over the lender’s demand that the conglomerate should follow up on its recommended debt restructuring.

Hyun has balked at this, arguing that KEB doesn’t understand the debt-oriented financing of her main flagship, Hyundai Merchant Marine, which makes its financial status look worse than it really is.

Industry observers say, however, that Hyun wants to maintain her financial independence from the bank so as to enable the group to borrow more in order to make an earnest bid for Hyundai Construction.

If she follows KEB’s debt restructuring plan, it is likely that the Hyundai Group will be out of the race for the country’s leading construction firm, the start up business of the founder’s empire.

But there is more to this than meets the eye. Hyundai Construction has a significant stake in Hyundai Merchant Marine. So if Hyundai Motor, led by her brother-in-law Mong-koo, and Hyundai Heavy Industries’ major shareholder Chung Mong-joon, make a joint bid for the builder and wins, their combined share in the shipping firm will threaten her management rights of the group, which also include Hyundai Securities and Hyundai Asan, the operator of the suspended Mt. Geumgang tours and Gaesong Industrial Complex.

“We wouldn’t say that we don’t want Hyundai Construction,” a Hyundai Motor source told The Korea Times. His remarks represent a sea of change in the space of a month. Last month, Hyundai Motor officially denied any interest in the construction firm.

Hyundai Merchant Marine suffered operating losses of 565.3 billion won last year due to deteriorating profitability in the aftermath of the global economic downturn.

As the country’s runner-up shipper, Hyundai Merchant Marine accounts for about 80 percent of Hyundai Group’s total assets and 60 percent of its sales. Another major unit, Hyundai Elevator also chalked up a net loss last year.

Hyundai Group instantly struck back in May via asking for a change of its main creditor, which it claims exerts a big influence in deciding whether to put a company on the list for financial restructuring.

KEB is by no means sitting idle. As Hyundai refused to sign the debt reduction scheme, it opted not to open any new lines of credit for the group earlier this month after talks with other creditors. They will convene next week to discuss ways of not rolling over mature debts of the Seoul-based group.

Abandoning the good old wife

‘`What new recruits of Hyundai do first is to open accounts at KEB through which they receive their salaries. KEB has been a special entity for us and we thought we were equally special for KEB,’’ a Hyundai Group insider said.

``We liken the maneuvers of KEB to kicking out the wife who has been through so much. It is extremely inhumane in Korea to abandon a good old wife who shared in all the difficulties over the decades.’’

The official, who joined the Hyundai Group around 20 years ago, said that he feels a sense of betrayal.

``We benefited from the close relationship with KEB but the opposite is also true _ I don’t think that KEB would be this big without the 40-year-old partnership with us,’’ he said.

``At some point, KEB struggled while we fared well. Back then, we didn’t turn our back on KEB. Just have a look what the bank is doing to us. We were frustrated in so many cases of late.’’

In response, KEB said that it has offered favorable treatment to Hyundai.

``Last year, Hyundai’s figures were bad enough to sign a debt restructuring pact but creditors decided to delay the decision to 2010 to wait and see the performance of the whole of 2009,’’ the KEB representative said.

``Furthermore, we postponed the deadline of signing the financial restructuring agreement three times in June and July because of the very long-term relationship with Hyundai.’’