Creditors of Hyundai have agreed a new financing plan that will improve the liquidity of three of the Korean group's subsidiaries. Hyundai Electronics Industries will benefit from increased guarantees on export related financings from the creditors who also agreed to extend the maturity for loans worth 300 billion won (W300 billion) by one year.

Guarantees will now cover the purchase of documents against acceptance (D/As) to $1.45 billion and letters of credit (L/Cs) to $530 million for the remainder of this year.

Additional new funds have also been extended to two other of the group's subsidiaries, Hyundai Engineering and Construction (HDEC) and Hyundai Petrochemical.

Top officials from the group's 17 creditor banks also said the subsidiaries must press ahead with their recovery programmes when they announced the new financing arrangements following a 10 March emergency meeting.

Bailouts court controversy

The latest bailouts follow reports that the ailing Korean industrial giant has recently experienced a serious squeeze on liquidity as a result of several creditor banks refusing to provide new loans.

The move by the Hyundai creditors will prove controversial in the light of regulations issued by government to liquidate unviable companies that prove unable to implement their own recovery plans.

HDEC for example has only been able to raise only W34.3 billion on its account in the first two months of this. Its recovery plan specifies it should secure a total of W748.5 billion by the end of the year.

Debt for equity option

Hyundai's creditors and the government have worked closely on measures to resuscitate the world's largest chip manufacturer, apparently recognising that another Daewoo-type collapse would be unacceptable.

Critics however maintain that the industrial giant should not enjoy privileged help from its creditors. Hyundai has indicated that it would consider a debt for equity swap in order to survive if it proves unable to meet its loan obligations.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.