Escalating tensions between the two Koreas is adding more pressure on North Korea-related business operator Hyundai Group, which is already struggling to save its shipping unit from a deepening liquidity crisis.

In response to a recent nuclear test and rocket launch by the North, South Korea on Thursday announced its withdrawal from the Gaeseong industrial park, the last remaining symbol of economic cooperation between the two nations. 

The move will have a direct impact on Hyundai Asan, a Hyundai Group affiliate that spearheads North Korea-related businesses. The company has managed the factory park in the North and has some 40 billion won ($33 million) worth of assets at the site.

“We have a firm willingness to continue our North Korea-related business, which has been inherited from our former chairman. Hyundai Group is the only qualified firm, as we are the only one that holds an exclusive business right (to develop and operate the industrial site in North Korea),” a group official said.

As tension intensifies, the firm’s employees working at Songak Plaza, a hotel, a duty-free shop and a gas station within the complex have pulled out from the resort.

The company that pioneered inter-Korean commercial ties had already lost nearly 1 trillion won due to the suspension of its North Korea tour programs since July 2008, when Seoul banned all tourists from visiting the isolated country after a North Korean guard shot a South Korean visitor dead at Mount Geumgangsan.

Industry watchers said that it is hard for Hyundai Asan to take preemptive measures to tackle the negative impact, as North Korea-related business issues need to be addressed by the two governments.

“We are trying to minimize the number of the workforce in North Korea while seeking to find other revenue sources, such as construction business,” the official said.

But the deteriorating geopolitical risk is taking a toll on Hyundai, which has been hoping to resume a project to import Russian bituminous coal through a railway connecting North Korea and Russia.

Amid ballooning losses from North Korea projects, at the heart of the group’s troubles is flagship Hyundai Merchant Marine, the unprofitable shipping company whose debt-to-equity ratio soared to 786 percent.

On Feb. 5, the shipping unit posted another annual loss, dipping 443.4 billion won into the red for 2015. The result marked a fifth consecutive annual loss for HMM.

The loss impaired more than half of HMM’s capital and resulted in its shareholders’ equity falling 30 percent year-on-year to 477.5 billion won, implying a very high gearing ratio, given liabilities of 5.6 trillion won, although the company has more than 6 trillion won in assets.

Adding further woe to its prospects of survival, the share price in its shipping unit plunged a record 20 percent Thursday to close at 2,445 won.

By Park Han-na (hnpark@heraldcorp.com)