Hyundai ends family row

If Hyundai Engineering were to fail, it would lead to further unrest

The feuding sons that run South Korea's largest conglomerates have made peace in order to bail out the country's biggest construction company.

Hyundai Motor is to help Hyundai Engineering and Construction raise money to avoid bankruptcy.

The builder employs 28,000 people and its failure could have sparked fresh waves of unrest in the country, with trade unions already demonstrating at the weekend.

But while the news may come as a relief to the builder and its employees, it could be seen as flying in the face of moves to reform South Korea's conglomerates.

I'm afraid the debt crisis of Hyundai Engineering will become a never-ending story

Lee Young, Seoul Securities

South Korea's economy is dominated by a handful of conglomerates or chaebol, whose interests range from shipbuilding to engineering to electronics.

The mismanagement of these companies which had accumulated huge debts, was seen as one of the factors which led to the Korean crisis and pressure has grown for the chaebol to reform themselves.

Family fued

Under those reforms, loss-making businesses were supposed to be separated from more profitable sections of the chaebol and made to stand or fall on their own.

But, fearing the repercussions of a fresh business failure, the government put pressure on the two brothers to bury their differences.

"Hyundai Engineering and Korea Exchange Bank plan to jointly announce Hyundai Engineering's self rescue plan to raise one trillion won ($882m)," a government spokesman Park Jong-Kil, said.

Hyundai Motor is prepared to help "through transactions between related companies", a statement from the company said.

Financial Supervisory Commission Chairman Lee Keun-young met Chung Mong-koo, chairman of Hyundai Motor on Wednesday.

He asked him to help Hyundai Engineering, run by his brother Chung Mong-hun.

The two brothers' fighting earlier this year had triggered a management crisis.

It began when Hyundai's founder named Chung Mong-hun, rather than elder son Chung Mong-koo, his designated successor.

Bankrutpcy fears

Hyundai Engineering just narrowly avoided bankruptcy this week.

It must pay about a fifth of its $4.4bn debt this year.

Since the financial crisis crippled the economy in 1997, many observers felt that the chaebol should try and survive without government help.

However, political consensus is that Hyundai Engineering is too important to fail.

Finance Minister Jin Nyum has said the construction company must be kept afloat because of the potential impact it would have on the economy.

In third quarter results released on Thursday, it posted a net loss of 72.28bn won.

In the first nine months of the year, it posted a net loss of 250bn won ($200m).

"The government has decided to save Hyundai because of the huge impact its collapse would have on the country's economy, especially after the bankruptcy of Daewoo Motor," Lee Young of Seoul Securities said.

"But I'm afraid the debt crisis of Hyundai Enigneering will become a never-ending story," he said.