Hyundai Begins International Roadshow to Assure Investors

Strategic Insights -

Hyundai, South Korea's largest conglomerate, is embarking on a two-week international roadshow to alleviate concerns from overseas investors about its financial stability. The move follows the near collapse of Daewoo, another leading Korean conglomerate. Investors have expressed worries about Hyundai's massive debt of Won61,000bn ($50.6bn) and its ability to service it. Despite raising the largest amount of equity funds among Korean business groups this year, foreign bankers have warned they may reduce credit to the group. Hyundai claims its cash flow is strong and capable of meeting debt payments, with an estimated cash flow of $6.8bn in the fourth quarter of 1999 against debt payments of $4.5bn.

Key Takeaways:

  • Hyundai's debt burden stands at Won61,000bn ($50.6bn), with the group expecting to reduce the number of subsidiaries from 79 to 26 by the end of this year.
  • The disposal of assets is aimed at achieving a state-mandated debt/equity ratio of 200% by the end of 1999, down from 449% last year and 340% at the end of June.
  • Hyundai claims most of its debt is long-term, unlike Daewoo's, and it is a market leader in core industries such as car production, shipbuilding, and semiconductors.
  • Analysts have expressed confidence in Hyundai's restructuring plans, but some have questioned whether the group can meet this year's debt/equity target due to its reliance on domestic equity issues.
  • Hyundai has ample cash reserves, estimated at $3.6bn, which have enabled it to spend on capital expenditures in 1999.
  • The group has already disposed of 33 affiliates and plans to sell another 20 units over the next two months.
  • Hyundai expects estimated cash flow to increase to $8.8bn next year as it continues to sell assets.

Statistics:

  • Hyundai's debt burden: Won61,000bn ($50.6bn)
  • Cash flow in the fourth quarter of 1999: $6.8bn
  • Debt payments in the fourth quarter of 1999: $4.5bn
  • Expected cash flow next year: $8.8bn
  • Number of subsidiaries to be reduced: from 79 to 26
  • Number of disposed affiliates: 33
  • Cash reserves: $3.6bn

Sources:

  • Financial Times Limited 1999. All Rights Reserved.