3. The Currency crisis and capital increase of POONGSUNG Precision’s DENSO equity

(1) The currency crisis and POONGSUNG Electric

Concerns about the economic crisis in South Korea were unusual from the beginning of 1997. Economic experts said that the economic situation in South Korea and the four industrialized Southeast Asian countries such as Thailand was similar to that in Mexico, which experienced a currency crisis in 1994, and that there was a possibility that a currency crisis would hit South Korea. These claims continued until the occurrence of the actual currency crisis, but the government’s reaction was slow.

Amid growing concerns about the currency crisis, in the spring of 1997, the Kia Group began to be surrounded by rumors of various critical situations, including increased international competition, a sluggish economy, and poor management of its affiliates. In the middle of summer, in July, amid a flurry of false rumors, it was finally subject to a suspension agreement for non-payment.

Meanwhile, in July 1997, POONGSUNG Electric had planned to solicit applications for public shares but withdrew from the public offering due to the occurrence of the Kia Group’s incident. POONGSUNG Electric then decided to hold off on the public offering until Kia Motors’ operations were normalized, and the proceeds were settled smoothly. At the time, Kia Motors accounted for 57.3% of the company’s sales in 1996. It was clear that if Kia Motors failed, POONGSUNG Electric would not be immune to the heavy blow.

In November 1997, with the stock market remaining at its worst low, the South Korean government asked the IMF for a bailout. With no signs of a rapid recovery in Kia Motors’ situation, POONGSUNG Electric pulled its initial public offering on December 29.

The Kia Group was eventually sold to Hyundai Motor in 1999 through an international tender in October 1998, despite various scenarios presented during the disorder of the currency crisis. In addition to automobile manufacturers, 11 of the 30 largest group enterprises in the South Korean business world experienced the pain of tear-downs due to the currency crisis, and eight of the 30 largest group enterprises fell from that group. The situation at POONGSUNG Electric was also not easy. This led to a sharp decline in business performance, including non-payment of wages.