Hyundai Group treats ailing units

South Korea's Hyundai Group has pledged to save its ailing computer-memory chip-maker Hynix Semiconductors Inc

In this story: Products assembled in Korea Loss-making project Pressure for corporate reform RELATED STORIES, SITES

HONG KONG, China -- South Korea's once mighty Hyundai Group has pledged a billion-dollar guarantee and has cancelled an unsucessful project in a bid to rescue its ailing units.

Three affiliates of Hyundai Group reportedly provided a $1.2 billion "warranty of purchase" to financially troubled Hynix Semiconductor Inc.

In a separate development, one of the three units, Hyundai Merchant Marine Co, has decided to reduce its hold on loss-making ferry tours to North Korea and asked its sister company to take over operations.

Hyundai Heavy Industries Co, Hyundai Merchant Marine, and Hyundai Corp pledged the guarantee to Hynix, formerly called Hyundai Electronics Industries, in a bid to save the unit from another liquidity crunch.

Under the agreement, the three Hyundai affiliates will buy unfinished memory chips produced by Hynix Semiconductor Manufacturing America, if the parent company fails to buy the chips.

HSMA is based in the U.S. state of Oregon.

Products assembled in Korea

Hynix Semiconductor purchases unfinished memory chips from its U.S. unit and assembles the products in Seoul for export.

Hyundai Heavy spokesman Lee Chang Ho emphasised that the agreement is not a loan guarantee, but "a warranty of purchase."

Officials of the three Hyundai affiliates said they would sell the chips to another company if the parent company fails to buy the chips.

Financial troubles at Hynix Semiconductor began surfacing in January when state-run Korea Development Bank agreed to purchase 80 percent, or about $2.2 billion, of the company's maturing corporate bonds this year.

In a move to appease creditors and investors, the company created a restructuring plan that included a 23 percent reduction of its 22,000-member work force, and the raising of about $750 million this year from the sale of assets, including real estate and securities.

Hynix Semiconductor posted a loss of about $1.9 billion on sales of $6.8 billion for 2000.

Loss-making project

Cruise operator, Hyundai Merchant Marine is set to cutback its tours to North Korea, and has asked its sister firm to take over due to a rapid decline in tourists, a newspaper report said.

The two Hyundai firms have incurred about $320 million in losses since the tours began in late 1998.

Hyundai has recently hinted that it might give up the tour project altogether unless the South Korean government offered help. But the government ruled out any financial assistance.

Analysts, however, warn that the scrapping of the project could strain diplomatic ties between the two countries.

"It's less about business deals than about politics," said Jonathan Harris, head of research at HSBC Securities.

The project is the largest private investment in the North made by a South Korean company and has been a symbol of Seoul's determination to pursue the "sunshine policy".

Relations between the two Koreas have warmed since an historic summit between South Korean president Kim Dae-jung and North Korean leader Kim Jong-il in Pyongyang last June.

Pressure for corporate reform

The moves to save the ailing Hyundai units runs counter to president Kim's longstanding policy on corporate reform.

The government has put emphasis on increasing the independence of affiliates within conglomerates to improve management and shareholder value.

Seoul has also been pressing Korean conglomerates to remove cross-debt guarantees and other financial ties among affiliates, and to reduce the practice of having stronger units support weaker ones

Reuters contributed to this report.

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Hyundai wins funding reprieve for three subsidiaries
March 12, 2001

Hyundai Heavy Industries Co.

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