Hyundai Refuses Former Affiliate
Friday, November 10th 2000, 12:00 am
By: News On 6
SEOUL, South Korea (AP) â€” South Korea's Hyundai Motor Co. refused Friday to come to the rescue of its former affiliate Hyundai Engineering & Construction Co., the nation's biggest building concern
The dispute between Hyundai Motor and Hyundai Engineering stemmed from a family feud aggravated by government pressure on parent Hyundai, the nation's largest conglomerate, to divide itself into independent and efficient subdivisions.
For days, Chung Mong-hun, who controls Hyundai Engineering & Construction and many other Hyundai affiliates, tried in vain to meet his estranged brother, Hyundai Motor chairman Mong-ku, to seek financial support for the construction firm.
Hyundai Motor, Kia Motor and other auto-related Hyundai affiliates had been spun off by the Hyundai conglomerate earlier this year after Mong-ku lost to younger brother Mong-hun in a struggle for leadership of the $75 billion conglomerate.
``By law, we have completed our separation from Hyundai. We have no interest in helping Hyundai Engineering & Construction,'' said Lee Ke-an, president of Hyundai Motor, which is the nation's biggest carmaker.
Hyundai Engineering must raise $818 million in new funds to cut its debt by year end. Otherwise, government-controlled banks say they will declare the firm bankrupt and take it over through debt-for-equity swapping.
A typical South Korean conglomerate is a fleet of dozens of firms interlocked through cross-funding and cross-debt guarantees. Healthy affiliates used to quickly marshal resources to bail out troubled subsidiaries.
As Mong-hun's Hyundai Engineering sank into financial crisis, some market observers speculated that Mong-ku might step in to help. But Hyundai Motor's refusal to help was a rejection of old bailout practices.
``We must strictly differentiate between personal matters and company affairs,'' Lee said.
Mong-hun's aides said Hyundai Engineering could put together a satisfactory rescue program without Hyundai Motor's help. He planned to sell stock and real estate holdings.
The Hyundai car business has remained lucrative, while Hyundai Engineering has suffered financial turmoil after expanding on borrowed money.
The construction firm was expected to generate $63 million in profits this year. But it was not enough to pay interest and repay millions of dollars of loans coming due every week.
South Korea is urging debt-ridden big businesses to cut debt to restore investor confidence in the economy or face bankruptcy.
Also Friday, Daewoo Motor Co., the nation's third largest car maker, applied for court receivership, two days after creditors declared it bankrupt.
The court was expected to freeze all debts and assets and install new management within a week while it deliberates whether to put the company under court receivership. The process usually take a month.
The company said it could launch more vigorous restructuring under court receivership.
Credit banks declared Daewoo Motor bankrupt Wednesday after the company's labor union rejected the management's restructuring plan, which would shed 18 percent of the carmaker's 18,000 workers.
The main plant of Daewoo Motor in Bupyong, 18 miles west of Seoul, remained idle for a second straight day Friday because some of Daewoo's 550 main suppliers, citing their own financial crunches, refused to provide parts.
Daewoo Motor went bankrupt while creditors were negotiating to sell the firm to General Motors of the United States.