July 25: Another week, and SSB enters new talks with Korea Exchange Bank, Hynix's main creditor, for yet another bailout. By now, the stock's market value is below the amount raised in June.
Aug. 6: An SSB analyst puts out a ``buy'' recommendation on Hynix stock. (I think this guy also sells used cars.) And to enhance the ideological frisson, we now have a US senator accusing the Kim government of illegal subsidies, and Lee Hoi-chang, Kim's most outspoken critic and a conservative presidential aspirant, piling on.
Never mind that it was Lee's ilk who created the chaebol and Korea's high-debt industrialization strategy back in the 1960s and 1970s.
Aug. 14: A week and a bit after the ``buy'' report, Hynix revises its first-half losses upward by 20 percent, to 2.1 trillion won. By now the stock is off something like 70 percent.
This week the Hynix story has grown yet hazier. On Tuesday, KEB announced that it was reluctant to extend further credits to Hynix. Bank officials complained that exposure to Hynix has already made KEB the second-worst bank stock on the Seoul market, and KEB has come to care about such things. But the smart money still thinks that another rescue is more or less inevitable, probably in the form of rolled-over maturities, a debt-for-equity swap, or both.
There's a detail in here that must not be missed. Among Hynix's creditors is Citibank, which is part of the same group that owns SSB, Citigroup Inc. This is why we must hang on Solly's every word, for we know each one springs from integrity and disinterest.
Citi, you may recall, agreed last December to lend Hynix 800 billion won -- but not before asking the Kim government to force state-owned creditors to get further into the bailout game so it would feel safer. Can't you just hear the conversation? ``Stop telling the banks what to do,'' the ladies and gents at Citi must have said, ``unless it's to our benefit.'' It's swamp water, all right. But we look not merely at South Korea's problems. We look at South Korea's problems as the nation copes with the ethical mess that arrives with Western institutions and advisers such as SSB, who purport to stand for a more appropriate set of rules governing how the game is played. This is the true picture. Hynix was a bad prospect to begin with. The Hyundai Electronics acquisition of LG Semicon was ill-conceived, those who know the company say, because it combined two incompatible production operations, which meant that anticipated research synergies were unlikely to be realized -- and they haven't been.
As everyone knows, the Kim government is in a serious bind at this point. It has not done enough to construct the kind of social apparatus that would make it possible to let Hynix go. In effect, the company now functions partly as the very welfare system that should be there to absorb its employees, retrain them, and send them on to something new. This can't go on indefinitely, and Kim's ministers know this.
Patrick Smith is the author of Japan: A Reinterpretation. The opinions expressed are his own.
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