By Kim Tae-gyu
The Korea Exchange Bank (KEB), the largest shareholder of Hyundai Engineering and Construction (HE&C), threatened to cancel its preliminary deal on the country’s top builder if preferred bidder Hyundai Group fails to clarify its funding plan.
The Seoul-based lender said Wednesday that Hyundai Group is required to present details by Dec. 7 on its 1.2 trillion won account at France’s second-largest bank Natixis, whose sources Hyundai Group refuses to specify.
The amount accounts for more than a fifth of Hyundai Group’s bidding price of 5.51 trillion won ($4.8 billion) for HE&C. Hyundai Group claimed that it is a loan based on credit but suspicions sprang up regarding where exactly it originated.
``On Nov. 30, we sent a request to Hyundai Group asking for the loan contract and related documents on the 1.2 trillion won in question by Dec. 7,’’ KEB Director Kim Hyo-sang told a press conference.
``Otherwise, we will discuss with the other creditors whether to scrap the memorandum of understanding (MOU) with the group.’’
Kim added that if the MOU is canceled, the alternative bidder Hyundai-Kia Automotive Group will replace Hyundai Group. The former wrote in a bid amounting to 5.1 trillion won for the auction, 410 billion won shy of that of the latter.
Hyundai Group, which signed the MOU on acquiring HE&C earlier this week after beating Hyundai Automotive, may start to sweat since the remarks of KEB echo those of another creditor.
The state-run Korea Financial Corp. (KOFC), one of the three main creditors of the fast-growing constructor HE&C together with KEB and Woori Bank, expressed similar comments just after the signing of the MOU.
``Hyundai Group will have to present particulars on the loan soon. If not, it might lose its status (as a preferred bidder). This is possible with the approval of two of the three main creditors,’’ KoFC head Yoo Jae-han told reporters on Monday.
This means that KEB and KoFC can join hands to deprive Hyundai Group of the preferred bidder’s status without having to win the green light from Woori Bank.
The group has reiterated that the MOU for HE&C does not stipulate any rights of creditors on requesting the loan contract but promised to provide documents or data if such demands are rational.
When Hyundai Group gives the loan contract to the creditors, there are three possible scenarios, according to market watchers.
If the amount is genuinely borrowed money on credit, as Hyundai Group claims, the group would be able to sign the eventual stock purchase agreement as originally planned.
In the case that Hyundai Group offered any assets of HE&C as collateral for the loan, it will be disqualified as a bidder. As a result, the chances are that Hyundai Automotive will snap up the contractor instead.
Given Hyundai Group used assets of its subsidiaries as collateral, the creditors are expected to discuss the future of the deal because that means the group lied.
The rivalry between the two contenders ― Hyundai Group and Hyundai Automotive is getting uglier as both employ tit-for-tat strategies involving court action ― a total of three lawsuits between the two arose in merely two days.
Hyundai Group opened fire first by suing Hyundai Automotive, Monday, for 50 billion won, alleging that the carmaker had spread groundless rumors on its financial capacity.
Hyundai Automotive fired back Tuesday through a counter action against Hyundai Group, contending that the shipping-focused mid-tier group defamed it based on the false accusations.
In retaliation, Hyundai Group sued Hyundai Automotive once again on the same day, arguing that the latter is interrupting the procedure through ill-meant accusations.
``When the preferred bidder is fixed, the auction is typically done. But things seem to be different this time around. It still remains to be seen who will eventually take over HE&C,’’ a Seoul analyst said.
``Hyundai Group and Hyundai Automotive might file a complaint against the creditors should things go against them. The procedure might include extended court action.’’
If the procedure goes as initially planned, Hyundai Group is supposed to begin due diligence this month in order to sign the final deal in early 2011.