Hyundai Motor drives hard bargain on HE&C

By Kim Da-ye

Hyundai-Kia Automotive Group has discovered contingent liabilities and distressed debts that could together add up to 800 billion won during its due diligence on Hyundai Engineering and Construction (HE&C) and has asked for a discount, it was learned Monday.

A Hyundai official said back in January that the firm could ask stakeholders of HE&C for up to a three percent discount on the 5.1 trillion won it proposed to acquire a 35 percent stake in the builder.

That three percent is worth about 153 billion won, and this could bring the final price tag to 4.97 trillion won.

Yonhap reported that the automaker is looking to ask for a further markdown because of the size of the undisclosed liabilities, but creditors led by Korea Exchange bank won’t accept a lower price, insisting on the terms of the preliminary deal they signed.

Shareholders of the builder already lost the opportunity to make 5.51 trillion won by selling it to Hyundai Group, the former preferred bidder for HE&C.

The due diligence ended on Feb. 18, and the negotiations over the final price are expected to end by Friday.

Further discussions resulting from the discovery of potential debts could delay the negotiations as a discount of over three percent needs 75 percent of shareholders’ votes.

Yoon Jin-il, an analyst at IBK Securities, said that even if the liabilities yet to materialize are proved to be 800 billion won, it is only 6.8 percent of the builder’s worth.

Yoon said that the appropriate value of HE&C is estimated at 11.8 trillion won ― its business is worth 8.2 trillion won plus assets worth 3.5 trillion won.

He explained that the potential liabilities found by the automaker could include losses from unsold housing and project financing, the increase in ratio of cost to sales and outstanding debts the builder failed to collect from the Iraqi government.

Back in 2005, HE&C wrote off 80 percent of $1.65 billion it was to receive from the Iraqi government for construction projects.

Hyundai-Kia acquired the right to bid for HE&C when the Seoul High Court rejected Hyundai Group’s appeal on Feb. 15 for an injunction against the cancellation of the preliminary deal it signed with HE&C’s creditors.

The former preferred bidder vowed to review in depth measures against the court’s decision.