Banks brand 62 firms nonviable: Decision on Hyundai Construction delayed Creditor banks announced yesterday that they have selected 62 nonviable companies to be liquidated, merged, sold or placed under court receivership. A decision on the fate of Hyundai Engineering & Construction (HEC) and Ssangyong Cement Industrial, however, was postponed. In a press conference, the banks said that 52 companies were picked from a list of 287 companies with debts exceeding 50 billion won, while an additional 10 firms with debts less than 50 billion won were included.

A total of 19 companies, including Samsung Commercial Vehicles, will be liquidated and 10 firms such as Korea Express and Dong Ah Construction Industrial will be put under court receivership. An additional 20 companies will be sold, while three others will be merged.

Creditors of HEC, however, failed to reach an agreement on how to deal with the cash-strapped company due to Hyundai Group's refusal to accept their demands for stronger self-preserving measures.

Creditors, the government and Hyundai staged a tug of war over the fate of the nation's largest construction company till the last minute. Demanding stronger self-rescue steps, creditors and the government threatened to place HEC under court receivership should the company fail to pay maturing trade bills.

But Hyundai refused to give in to the demand, calling on the creditor banks to extend fresh loans of 200 billion won to the ailing company. HEC is considered a virtual holding company for the nation's largest conglomerate.

It is the second time since the nation's foreign exchange crisis in late 1997 that creditors and the government have taken a scalpel to debt-ridden companies. In June 1998, 55 companies belonging to the nation's top 64 conglomerates were forced out of business due to their huge debts.

The domestic financial markets reacted positively to the announcement of the corporate hit list as it was viewed as showing the government's firm resolve to speed up the nation's corporate restructuring.

The stock market rallied for the fourth consecutive day yesterday, with bank stocks showing strong performances. "Investor sentiment got a boost from the announcement as it heralds the acceleration of the corporate restructuring drive," a stock market analyst said.

The Korea Stock Exchange said that companies selected for liquidation will be de-listed from the bourse 15 days after they make a public notice to investors individually.

The announcement of the blacklist is widely expected to come as a boon to the Korean economy by removing its "sore spots" and boosting Korea's external credibility. "The liquidation of nonviable companies is likely to set in motion a virtuous circle in which funds will flow to good credit companies, thus paving the way for the economy to make a second leap," an analyst said.

But concern is also growing that the move may entail a range of side effects; financial turmoil, credit crunches at corporations, chain-reaction failures of suppliers, large-scale labor disputes, a rise in unemployment, and an economic slowdown.

"The government should come up with measures to minimize possible side effects as quickly and effectively as possible," another analyst said. "This will be the key to the future success or failure of the economy."

The selection of nonviable corporations came as a blessing in disguise to the banking sector. "The liquidation of marginal companies will require local banks to put up huge loan-loss reserves," a bank official said. "Provisioning of additional reserves may make a dent in their bottom-line figures as well as aggravate their financial health over the short term."

Over the long haul, however, the move will benefit the banks as it is likely to clean up their balance sheets by eliminating non-performing loans, the official added.

The move is in line with a government blueprint for second-phase financial and corporate restructuring, which the government is determined to complete by yearend.

Under the plan, domestic banks had been reviewing the viability of 287 loss-making companies with debts of 50 billion won or more and deemed unable to pay their debts with operating incomes.

The government put forward the second-phase restructuring plan Sept. 24 amid growing criticism that Korea's economic reform was stalled due mainly to its reluctance to push highly leveraged companies out of the market.

The stalemate in the reform drive has also spawned concerns that Korea may lapse into a second crisis amid clear signs of an economic slowdown.

Despite an injection of nearly 110 trillion won in public funds to clean them up, domestic banks and non-bank financial institutions are still saddled with huge non-performing loans mainly due to their heavy exposure to marginal corporations and companies under debt workout programs.

By Kwak Young-sup Staff reporter

http://www.koreaherald.co.kr/SITE/data/html_dir/2000/11/04/200011040037.asp

-- Carl Jenkins (somewherepress@aol.com), November 03, 2000