Posted at 7:17 p.m. PST Saturday, December 6, 1997
Another giant South Korean conglomerate falls
New York Times News Service
SEOUL, South Korea -- South Korea's 12th-largest conglomerate collapsed
Saturday, spurring new fears of a wave of corporate bankruptcies under
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 huge amounts of money to finance unsuccessful business
expansions.
The collapse of the conglomerates has saddled banks with huge amounts of
bad debts, 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 cripple 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 after
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 face over capacity.
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 going, and there
is speculation that Hyundai will rescue Halla or buy some of its
subsidiaries. But the state-owned news agency Yonhap Saturday quoted an
anonymous Hyundai official as denying this and saying that Hyundai could
not afford to do more to help Halla.
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