Leading South Korean corporation collapses No. 12 conglomerate fails as IMF terms prevent rescue from local banks

December 07, 1997|By NEW YORK TIMES NEWS SERVICE

SEOUL, South Korea -- South Korea's 12th-largest conglomerate collapsed yesterday, spurring new fears of a wave of corporate bankruptcies because of strict financial rules dictated by the International Monetary Fund.

Halla Group is the sixth of Korea's 30 largest chaebol -- conglomerates generally controlled by a single family -- to fail this year after borrowing large amounts of money to finance unsuccessful business expansions.

The collapse of the conglomerates has saddled banks with huge amounts of bad debt, crippling the financial system and helping to force Seoul into seeking the IMF bailout announced on Wednesday.

Halla fell into bankruptcy after failing to repay about $200 million in debt, according to its creditor banks. Its overall debt totals $5.3 billion.

Halla's bankruptcy could in turn hurt the giant Hyundai Group, which lent Halla money. It could also disrupt Korea's automobile industry, because a Halla subsidiary is a major supplier of car parts.

Halla's troubles began well before the IMF announced the program to lend South Korea $57 billion or more. But in the past, Halla might have been kept alive by its banks, which would have lent it more money. Banks, under government guidance, readily provided loans to favored industrial conglomerates without worrying too much about the risks.

But under terms set by the IMF for the bailout, banks must become healthy to survive. They can no longer afford to lend good money to back bad and in many cases are seeking immediate payments of outstanding loans from high-risk clients.

Halla's ran out of money because its banks would not give it fresh loans and called in old ones, Park Sung Suk, vice chairman of Halla Group, said at a news conference. Analysts think that other indebted companies will face bankruptcy under similar conditions.

Halla, which is involved in shipbuilding, paper, construction and other industries in addition to auto parts, said six of its subsidiaries were filing for either court receivership or court mediation to reschedule debt payments.

The biggest problem is with Halla Engineering and Heavy Industries, one of Korea's leading shipbuilders. Halla spent billions of dollars on a new shipyard, only to find itself struggling with overcapacity.

Halla was founded by Chung In Yung, the younger brother of Chung Ju Yung, who started the Hyundai Group, one of Korea's two largest chaebol.

Hyundai has been lending money to Halla to help keep it operating, and there is speculation that Hyundai will rescue Halla or buy some of its subsidiaries. But the state-owned news agency Yonhap yesterday quoted an anonymous Hyundai XTC official as denying this and saying that Hyundai could not afford to do more to help Halla.

Pub Date: 12/07/97

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.