The Hyundai E&C Fiasco: Doesn't Anyone Remember 1997-98? (update 1)

Hasn't the South Korean Economy Already Been Down This Road???  Yikes.
Today, as expected, Hyundai Motor Group was named as the preferred bidder for Hyundai Engineering and Construction.  The JoongAng Ilbo had earlier reported on the Hyundai Group's potential lack of funding for a purchase of Hyundai E&C.  In August 2010, Hyundai Group announced its intent to bid for Hyundai E&C.  There were suspicions that the Hyundai Group did not properly secure funding for its bid.  As a result, the Financial Supervisory Service (FSS) has now approved Hyundai Motor's selection as the preferred bidder.
Much of the press coverage in Korea has centered on the conflict among the members of the founding family of the Hyundai Group, whose affiliates once included Hyundai Motor Corporation and Hyundai Heavy Corporation.  In short, if the first word of a Korean company is called "Hyundai," then it was under the same corporate umbrella at one time or another.

Hyundai's Complicated Family and Corporate Ties
Currently, Hyundai Motor Group is headed by 71-year-old chairman Chung Mong-koo, son of Hyundai founder Chung Ju-yung. Hyundai Group is controlled by Chung Mong-koo's sister-in-law Hyun Jeong-enu.  Hyundai E&C was part of the Hyundai Group until 2001 when creditors took a 35% controlling share in the business.  
The Hyundai conglomerate was split into two separate companies in 1997-98 following the Asian financial crisis.  Hyundai Motor Group, which includes Hyundai Motor, Hyundai Steel and Kia Motors, was headed by Chung Mong-koo and Hyundai Group, which includes Hyundai Elevator, Hyundai Securities and Hyundai Asan, was led by his brother Chung Mong-hun.  Chung Mong-hun committed suicide in 2003 following accusations of false accounting when he faced a prison term, leaving his wife to succeed him as chairperson. 

The Feud Isn't The Real Issue
If you can understood the previous paragraphs without reading it twice, then you are either a historian, or a member of the Chung family.  The real issue, however, is not the fact that there are warring factions of the same extended family competing for the crown jewel Hyundai E&C.
However, the fact that there is now again the possibility of the same type of cross-holdings of financial interests such as debt, and equity by the different entities is highly alarming. It is precisely this type of corporate structure that led to difficulties which threatened the entire Korean economy, and brought the Korean banking system to its knees.
Korea can ill-afford this type of situation again.  Hyundai Motor Group has made enormous gains in the most important markets in the world.  In fact, Hyundai Motor now enjoys an 8.7% market share in the U.S., which is greater than Japan's Nissan.  Many years ago, there was no quality comparison between Hyundai and its Japanese competitors.  That is no longer the case.  The same can be said about many Korean corporations.  This type of corporate infighting, and the financial mess that accompanied it, must be avoided at all costs.
To be fair, Korea's economy is far stronger, far more diverse, and far more able to fight off an individual corporate event.  Nevertheless, a single case can be used as a precedent for future ones.  It isn't the specific Hyundai E&C debacle that is necessarily critical;  it is the fact that this pattern of financial transactions should not occur due to the inherent problems these transactions create.
The FSS must make absolutely sure that there are no situations where the cross holdings of financial interests can occur, and that over-reliance for liquidity does not rest at one bank.  During the Asian Financial Crisis of 1997-98, it became obvious that the largest chaebol were borrowing from primarily one bank, and when that chaebol was in financial distress, that individual bank was also distressed.  This can be avoided only if the financial authorities make sure that there are adequate rules, and enforcement of those rules.  Given the very spotty record of the FSS, perhaps it would be better to avoid this situation altogether, and disallow both Hyundai Motor and Hyundai Group from purchasing Hyundai E&C.