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Hyundai Group Under Pressure for SPC-based Restructuring like Dongbu Group
Restructuring of Hyundai Group
Hyundai Group Under Pressure for SPC-based Restructuring like Dongbu Group
  • By matthew
  • December 5, 2013, 06:52
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A Hyundai Merchant Marine ship docks at Washington United Terminal in Seattle, Washington, U.S.
A Hyundai Merchant Marine ship docks at Washington United Terminal in Seattle, Washington, U.S.

 

The government is putting pressure on Hyundai Group to launch a restructuring program in which the subsidiaries to be disposed of are sold in a package via a special-purpose company (SPC), as is the case with the Doosan and Dongbu Groups. The purpose is to urge Hyundai to show its will to sell key affiliates for intensive structural adjustments. 

“It is unlikely that the Hyundai Group will go under in the near future, but it is also true that it needs a group-wide restructuring in the long term,” said a high-ranking official of the government on December 4, adding, “The disposal process must be swift, unlike in the case of Tong Yang, and the assets to be sold should be separated so that the owner exercises no influence in it, which was not so in the cases of Dongbu and Doosan.”

The Hyundai Group is suffering from years of recessions in the global shipping industry and Hyundai Merchant Marine, one of its key subsidiaries, went into red ink in the third quarter of this year. Under the circumstances, the group is working on some self-help plans, and the Korea Development Bank (KDB), the main creditor bank, is demanding that Hyundai bring a restructuring program to win the trust of market participants. 

Doosan sold its assets not directly but via an SPC. Using this method, it could address its immediate liquidity problems, because the SPC paid undertaking money on a priority basis. In addition, the price negotiations went smooth, as the owner could have little influence on the asset disposal processes. The Doosan Group adopted the method back in 2009 to raise liquidity within a short period of time, and Dongbu is following the same way to be well received by the market. Dongbu and its main creditor bank KDB conducted due diligence on some of the assets of the former from December 2 this year. They decided to sell them through a newly-established SPC that will acquire the assets and then settle the difference in price when the assets are sold to a purchaser. This means that Dongbu can raise at least some liquidity before the disposal. 

What the government is most concerned over is the possibility of the Hyundai Group repeating the same mistake as Tong Yang. The Tong Yang Group, whose restructuring program had gone awry before, tried to dispose of its assets through repeated attempts, only to fail because the owner’s family thwarted them by claiming that the assets are key subsidiaries. 

The owner of the Hyundai Group has some shares in it through cross-shareholding as well, but the percentage is not stable. As such, the owner is providing inter-subsidiary support to protect his management rights. This is why the government is considering that Dongbu-style restructuring might not be easy for Hyundai. 

Hyundai is currently preparing some restructuring programs on its own. “Hyundai Merchant Marine is expected to benefit from an improvement in the global shipping industrial conditions that are thought to be available next year or later,” the government explained in response, continuing, “If the group is to save Hyundai Merchant Marine, it has to surrender some of its core affiliates, and the government can lend a helping hand only after then.”

At present, the government is thinking that Hyundai Securities should sell its shares, but Hyundai has a different opinion. “The Hyundai Group is scheduled to be included in the main debtor group in April next year according to the strengthened standard,” said the financial authorities. “Hyundai needs to announce its restructuring plan before the inclusion if it is to win over market participants.”