SEOUL, South Korea — The headquarters of Hyundai, South Korea’s biggest business group, overlooks a serene scene: the curved tile roofs and tree-lined pathways of an ancient palace called the Secret Garden. Inside the building, however, the mood of many is grim.
Nine years ago, Chun Hyon-dae was proud to join Hyundai Engineering & Construction, a company that was synonymous with South Korea’s full-speed economic growth. These days, his company is in danger of bankruptcy, a case study on the hazards of expansion on borrowed money.
"Being a Hyundai man meant becoming an object of envy among college graduates," said Chun, 35. Now, he said, "The mood is somber in our office. "When we sit down, colleagues talk about what will happen to our company."
For years, Hyundai Engineering was the centerpiece of family-controlled Hyundai. Riding on the construction booms at home and in the Middle East in the 1970s and 1980s, the firm raked in cash to finance Hyundai’s fast expansion into a $75 billion-a-year corporate empire with 40 subsidiaries.
Hyundai’s presence is ubiquitous. Seven out of 10 cars jamming the streets of Seoul, a metropolis of 10 million people, are made by Hyundai affiliates. People live in Hyundai apartments, buy fuel in Hyundai gas stations and shop in Hyundai department stores.
Now, the popular perception that Hyundai was "too big to fail" has been fading, especially since the bankruptcy last week of Daewoo Motor Co., the nation’s third largest automaker.
Hyundai’s trouble is an outgrowth of South Korea’s efforts to shed old ways of doing business.
In resource-scarce South Korea, former military rulers nurtured Hyundai Engineering and a handful of other family-owned businesses into conglomerates — called chaebol in Korean — through subsidies, cheap loans, tax breaks and a domestic market closed to foreign competitors.
The conglomerates fueled the nation’s economic development. Hyundai runs the world’s largest shipyard. Samsung is the world’s largest producer of computer memory chips. Hyundai cars, LG refrigerators and Samsung TV sets flood low-end global markets.
But the Achilles’ heel for these giants was they used borrowed money to fund their expansion.
For two years, President Kim Dae-jung has been urging them to take drastic steps to cut their debt, lower interest payments and become more profitable — a key condition for a $58 billion bailout package from the IMF that pulled South Korea out of the 1997-1998 Asian financial turmoil.
Many did not heed that warning, and critics accused Kim’s government of complacency. Some of the conglomerates even got bigger, and some weak affiliates plodded on without paying their huge debts, which were rolled over by government-controlled banks.
Hyundai, for example, gobbled up bankrupt Kia Motor, the nation’s No. 2 carmaker, and the semiconductor operation of LG last year.
Hyundai has been trying to get things under control. Earlier this week, Hyundai Engineering said it would sell a massive ranch and stakes in other Hyundai affiliates to raise $1.14 billion to cut its total debt to $3.8 billion by year end.
But government-controlled banks said it was a reprieve, not a resolution of the firm’s debt crisis. Having already rescued the builder once from bankruptcy this year, they say there would be no further bailout.
It’s been a bitter pill to swallow for Hyundai Engineering’s 7,000 workers. "We are bewildered and shocked," said Lee Moon-kun, 30.
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