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Banks provide emergency funds for Hyundai
May 28, 2000
SEOUL, MAY 27 (AP) - More banks began injecting emergency funds into a cash-strapped subsidiary of Hyundai, the country's largest conglomerate, on Saturday as the country moved to dispel fears of a possible financial crisis.
Korea Exchange Bank, Hyundai's main creditor bank, said Friday it extended a 50 billion won (dlrs 45 million) emergency loan to Hyundai Engineering and Construction Co., South Korea's No. 1 construction company.
Three other credit banks - Hanvit, Chohung, and Housing and Commercial Bank of Korea - said Saturday they will also each funnel dlrs 45 million to the Hyundai subsidiary.
Offering the combined dlrs 180 million in fresh loans, the banks urged Hyundai to hasten its reforms to unload subsidiaries and facilities to focus on car, shipbuilding and computer chips - sectors where it retains a competitive edge.
Hyundai Engineering said it will also sell securities valued between dlrs 272 million to dlrs 318 million to ease its liquidity problem.
Hyundai has been regarded as the slowest of South Korean conglomerates to restructure its vast business portfolio.
The first signs of trouble emerged in April when its Hyundai Investment Trust and Securities Co. was pushed to the brink of bankruptcy before the group hastened to dispel worries by injecting new funds.
Another Hyundai affiliate, Hyundai Merchant Marine, got a relief from its cash crunch earlier this month when Korea Exchange Bank expanded its short-term loan limit by dlrs 45 million.
Coupled with rising crude oil prices and interest rate hikes in the United States, Hyundai's woes have spawned fears that the country could enter another economic crisis. South Korea requested a record dlrs 58.35 billion bailout from the International Monetary Fund in late 1997.
Banks and government officials stressed that Hyundai's cash squeeze was temporary, caused by difficulties in rolling over its corporate bonds and commercial papers.
"Hyundai's liquidity problem is limited to Hyundai Engineering and Hyundai Merchant Marine. It is not serious and is not affecting other subsidiaries of Hyundai," said Lee Yong-keun, head of the government's Financial Supervisory Commission.
Analysts confirmed that the cash flow remains good at leading Hyundai affiliates, such as Hyundai Electronics Industries Co., Hyundai Heavy Industries Co. and Hyundai Motor Co.
They pointed out that 14 listed subsidiaries of Hyundai posted combined sales of dlrs 21.7 billion with a net profit of dlrs 363 million in the first quarter of this year.
But markets reflected the jitters.
The benchmark Korea Composite Stock Price Index plummeted 42.87 points, or 6.13 percent, to end Friday at 656.66. The stock exchange is closed Saturday.
South Korean conglomerates had borrowed heavily for expansion. A typical conglomerate has 30 to 40 subsidiaries, engaged in everything from cars and ships to computer chips and textiles. Those affiliates guaranteed each other's bank loans.
The weaker of those conglomerates collapsed amid a severe cash crunch during 1997's Asian financial turmoil. Daewoo, which used to be South Korea's No. 3 conglomerate, disintegrated and its subsidiaries are now on the bidding block.
Hyundai's total borrowings fell to dlrs 32.8 billion at the end of April, down from dlrs 34 billion, credit banks said.