Hyundai’s self-rescue plan in doubt

2014-01-02 16:52

Hyundai’s self-rescue plan in doubt

Kim Rahn
Hyundai Group’s plan to sell its core assets to secure cash is raising concerns due to uncertainties in the sales process and economic situation.
Analysts said the plan may help address the group’s liquidity shortage to some extent, but may create other problems by making key businesses unstable.
Such concerns were raised after Hyundai announced in December that it would secure over 3.3 trillion won by selling all three of its financial units ― Hyundai Securities, Hyundai Savings Bank and Hyundai Asset Management ― in a bid to avoid a liquidity crisis and lower its high debt ratio.Commenting on the scheme, the Korea Investors Service (KIS) said in a recent report that the group has not shown details on how and when it will sell the affiliates and the assets ― an important factor for the financial condition of Hyundai Merchant Marine, the group’s flagship unit.
“Price competitiveness of rival foreign shipping companies is getting strong and their market shares are getting larger. It is also highly uncertain whether the industry can recover from recession and whether Hyundai Merchant Marine can regain profits. Considering all that, selling the bulk carrier business and harbor terminals may lower the firm’s business stability and competitiveness from a long-term point of view,” the report said.
Rew Seung-hyup, analyst at the ratings agency, said, “I don’t know whether Hyundai Merchant Marine alone can solve the liquidity problem, as the group has a complicated cross-shareholding structure among affiliates, including the shipping one.”
He also said resolving the problem may be beyond Hyundai Group’s ability due to the uncertain industry situation. “It is said the shipping industry is showing signs of recovery. But the signs have appeared and disappeared several times in recent years, so it is difficult to ensure a real recovery this time,” he said.
The Nice Investors Service also expressed concerns over whether the selling of the bulk carrier business and the terminal can provide the group with 1.5 trillion won in fresh funds as planned, because the company will have to pay off related debts it borrowed for the facilities.
“By selling the profit-making businesses, Hyundai Merchant Marine may have fewer sources of cash,” the agency said in a recent report.
For Hyundai Elevator, the reports said the firm’s liquidity shortage may be eased if it successfully raises 217.5 billion won in equity capital in March by issuing additional shares.
“If the capital increase is carried out as planned, the firm will have enough funds. But the stock price will drop and its second-largest shareholder Schindler Holding AG’s opposition to the increase raises uncertainty,” the KIS said.
Nice also pointed out Hyundai Elevator’s derivative contracts are negatives ― in the contracts, the elevator firm, the largest shareholder of Hyundai Merchant Marine, promised to support the latter when the latter’s stock price falls.
“Hyundai Merchant Marine’s stock price was around 28,000 won at the time of contracts, but now is 11,000 won,” it said, adding the elevator unit may have to pay 400 billion won under the contract from 2014.
The ratings agency lowered Hyundai Elevator’s rating from A- to BBB+.
“It is premature to say whether the self-rescue plan is enough, or insufficient to make the group afloat again, and what other options the group has. We need to keep monitoring it for now,” Rew said.