Inchon seeks court receivership

South Korea's Inchon Oil Refinery, a unit of the Hyundai Group, said yesterday it planned to file for court receivership as its liquidity problems have worsened.

The company decided on August 30 to file for court receivership at a special board of directors meeting, according to a public notice to the Korea Stock Exchange. Inchon would submit the application today.

The move is seen to end years of misery for Inchon which was financially burdened with huge levels of debt prior to a government-orchestrated rescue plan in 1999 when Hyundai took over the company from the Hanwha Group, analysts said.

"The nightmare for Inchon is over," said Shinyoung Securities analyst Park Jong-bae.

The move could also help alleviate the domestic oil product supply glut as Inchon might be forced to shut its refinery operations temporarily, they added.

The company operates one refinery with a production capacity of 275,000 barrels per day (bpd), accounting for 10.4 percent of South Korea's total refining capacity of 2.65 million bpd.

Analysts said the move was expected after the company last week scrambled to make payment of 20 billion won ($15.70 million) in commercial paper in order to avoid being declared bankrupt.

"Today, Inchon finally woke up and realised its liabilities were too much for it to continue operations alone," said ABN AMRO analyst Patricia Ahn.

Due to its decision to seek court receivership, trading of Inchon Oil shares on the Korea Stock Exchange will automatically be suspended on Monday. Tuesday will see the resumption of trade. However, the company will be categorised as stocks under supervision.

Shares of Inchon Oil - called Hanwha Energy prior to Hyundai Oil's takeover of the company in 1999 - closed 80 won lower on Friday at 595.

"Seeking court receivership was the only alternative we have because the company does not have enough funds to maintain normal operations," a company official said.

The company reported a first-half net loss of 38.1 billion won, blaming it on declining oil demand in the weaker economy, increased competition and foreign exchange losses. Its financial woes have already forced Hyundai Oil to shave crude throughput at Inchon by 20 per cent within the past two months to half its capacity.

Cuts to crude runs at Inchon will be deepened by another 40 percent from September 1 to 90,000 bpd.

The Hyundai official said doubts over further debt rescheduling, including whether his company would help fund its debt-ridden affiliate, were also behind Inchon's move to file for receivership. Hyundai Oil is Inchon's largest shareholder with a 38.9 percent.

A statement from Hyundai said Inchon failed to honour 44 billion won in crude oil import bill due on Friday and that Hyundai refused request by its main creditor Hanvit Bank to participate in a debt-for-equity swap.

The Hyundai Oil official said recent downgrading of its credit rating also might have alarmed lenders over Inchon's debt rescheduling. Analysts said Inchon owed 400 billion won in short-term debt at the end of the first half, while its total liabilities totaled 2.37 trillion won.