On Saturday, March 10, creditor banks to the Hyundai Group convened an emergency meeting with executives from Hyundai Electronics Industries, Hyundai Engineering & Construction, Hyundai Petrochemical, and Hyundai’s financial advisor, Salomon Smith Barney, in order to discuss liquidity problems facing the Hyundai units and to determine feasible methods to resolve them.
During the meeting, the participants reaffirmed the viability of the concerned companies and reviewed the progress of self-rescue plans that are being implemented at each firm. In addition, the creditor banks reaffirmed and finalized each bank’s share of liquidity support to Hyundai subsidiaries, which had been agreed upon a few months ago.
At the request of the creditor banks, FSS representatives attended the meeting only to ensure the implementation of follow-up measures by the creditor banks and the Hyundai units, and not to influence the creditor banks or their decision to extend additional credits to the Hyundai companies.
1. The purpose of the meeting
The purpose of the meeting was to adjust and finalize the already agreed specific share of liquidity support to be assumed by each creditor bank, and to devise a timely implementation plan that could mitigate market uncertainties surrounding the companies; it was not to extend additional loans.
Between January and March 2001, the creditor banks had already agreed to raise the purchase limit on export bills (on D/A basis) by US$ 600 million for Hyundai Electronics Co. and to provide US$ 400 million in credit guarantees to Hyundai Engineering and Construction Co. However, both companies have been suffering from liquidity shortages due to disagreements among the creditor banks concerning the relative share of liquidity support that each creditor bank had to assume.
2. The criticism of government interference
With respect to the Hyundai Group, the creditor banks voluntarily held numerous meetings in the past and agreed to provide financial support to Hyundai companies that were determined to be more than viable.
However, due to the non-compliance of several creditor banks with the agreement, through such actions as restrictions on new loans, limits on fund usage, and reduced credit extension, Hyundai Group companies have continued to suffer from liquidity shortages. Therefore, the meeting was held to ensure more appropriate and timely liquidity support by all creditor banks to Hyundai companies.
The FSS sent representatives to the meeting only at the request of the creditor banks and to ensure that both sides took the appropriate follow-up actions. There were no attempts made by the FSS representatives to influence the creditor banks or their decision to extend new credits to the companies.
3. The conflicts with the Continuous Credit-Risk Assessment System
The Continuous Credit-Risk Assessment System, which went into effect in March 2001, facilitates corporate restructuring on an ongoing basis. The goal of the system is to ensure the early exit of non-viable companies, while providing liquidity support to viable companies in return for implementation of self-rescue plans.
When creditor banks announced their credit risk assessment evaluations of corporate borrowers on November 3, 2000, the Hyundai subsidiaries were classified as being ‘more than viable’, and the creditor banks agreed to provide liquidity support to the companies on the condition of aggressive self-rescue and rehabilitation plans. As such, the creditor banks’ decision to provide liquidity support to the Hyundai units is consistent with the Continuous Credit-Risk Assessment System.
* Please refer to the attached file for details.