COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Operations in India won't be affected, assures Daewoo; creditors sanction bailout, new loans in Korea

The future programmes for investments in India of South Korea-based Daewoo Motor Company may come under cloud as the parent company is faced with imminent bankruptcy.

Although the top management of Daewoo Motors India Limited tried to put up a brave face stating ''it is business as usual for us'', the company has already put off major investment plans including proposals to set up truck and multi-purpose vehicle manufacturing lines and even a retail financing arm.

According to Byung-Soh Min, deputy managing director of DMIL, ''It is business as usual for us.... These are minor hiccups in the path of a major restructuring exercise which has been going on for a long time and we will see it through. There is not likely to be any impact on the Indian subsidiary.''

Daewoo Motor Company, a subsidiary of the Daewoo group, controls 92 per cent stake in DMIL while the remaining equity is in the hands of public and financial institutions.

South Korea's financial watchdog today reportedly stated that the country's second largest conglomerate, the Daewoo group, may go bankrupt if creditors refused its request to roll over short-term debt.

In Korea, Daewoo had offered to provide $ 8.5 billion in collateral to its creditors to stay afloat amid a flood of maturing debt. The financial watchdog said Daewoo faced bankruptcy if creditors turned down its request to roll over $ 5.9 billion in debts maturing in the next ten days.

Daewoo said the 10 trillion won in assets offered as collateral included 1.26 trillion won in equity shares to be donated by Daewoo group chairman Kim Woo-Choong. The new loans, if extended, would go towards repaying maturing debts. Creditors would be given discretion over what to do with the collateral if the reform plans stumbled, it said.

The group also said it would focus on the auto unit, along with trading and construction arm Daewoo Corporation. It planned to cut the number of its affiliates to nine by the end of this year from 22 at the end of last month through mergers and sell-offs.

Daewoo's financial health has been of increasing concern to the market for months. Analysts have said the group has lagged behind the other family-run conglomerates, known locally as chaebols, in restructuring their sprawling empires.

In April, the Daewoo group had unveiled plans to drastically slim down and pay off debt by selling its shipbuilding company, commercial car unit and hotels.

Daewoo has since agreed to sell its Hilton Hotel to General Mediterranean Holdings for $ 215 million and said last week it had agreed to sell its automotive parts division for $ 396 million to Delphi Automotive Systems Corporation.

Meanwhile, senior Daewoo officials had said recently during a visit to Korea that all plans to infuse fresh equity into the Indian subsidiary have been put off. The company now intends to push its latest offering -- the 796cc Matiz and hopes to replicate the success the car met with on its home turf and also in Europe.

''Matiz, which commands around 70 per cent of the small car marketshare in Korea, is now being pushed as the vehicle which would drive the company into a cash-positive state. We intend to make Matiz a success story in India and then, may be follow it up with other models,'' they added.

Regarding the decision to put off foray into new market segments, the sources had said Daewoo had been conducting market research and studying various models in its stables as probable roll-outs for India.

DMC, through its Indian subsidiary -- Daewoo Motor India Limited -- had initially planned to introduce its line-up of trucks by 1999-end.

DMIL already has its shareholders' nod to bring in Rs 7.50 billion as fresh equity from DMC, Korea, for financing the company's expansion programme with regard to the manufacturing facilities for multi-utility vehicles and trucks.

These forays were as part of the company's efforts to broadbase its product range in India. Besides the Matiz, DMIL also produces and markets two mid-size cars -- Cielo and Nexia -- and two buses -- Royale and Caravan.

UNI

Koo Jee-Jin of Reuters reports from Seoul

South Korean creditors of Daewoo group agreed today to roll over its short-term loans, helping it avoid bankruptcy as a flood of maturing debt threatens to sink the country's second largest conglomerate.

Representatives of Daewoo's 69 creditors, including banks and non-banking financial institutions, talked for more than three hours before agreeing to accept ten trillion won ($ 8.4 billion) worth of collateral and extend four trillion won ($ 3.4 billion) in new loans.

''The creditor banks have agreed to give the fresh loans to Daewoo and to roll over its short-term debts, in return for the collateral as proposed by the group,'' said a spokesman for one of Daewoo's largest creditors, Korea First Bank.

The financial supervisory service watchdog said Daewoo group would have faced bankruptcy if creditors had turned down its request to roll over seven trillion won ($ 5.9 billion) in debts maturing in the next ten days.

Daewoo said the ten trillion won in assets offered as collateral included 1.26 trillion won in equity shares to be donated by Daewoo group chairman Kim Woo-Choong.

The new loans would go towards repaying maturing debts. Creditors would be given discretion over what to do with the collateral if the reform plans stumble, the company said.

Earlier, Daewoo said chairman Kim would resign from his post after putting the prized auto units on a normal footing and the remaining affiliates would be run by professional managers.

The group also said it would focus on the auto unit, along with trading and construction arm Daewoo Corporation. It planned to cut the number of its affiliates to nine by the end of this year from 22 at the end of last month through mergers and sell-offs.

Deputy governor Kim Sang-Hoon at the financial supervisory service said creditors were considering providing four trillion won worth of fresh funds to Daewoo through purchases of its commercial paper and other money market instruments.

Daewoo's financial health has been of increasing concern to the market for months. Analysts have said the group has lagged behind the other family-run conglomerates, known locally as chaebol, in restructuring their sprawling empires.

The mountain of debt accumulated by the highly leveraged chaebol was blamed in large part for triggering the financial crisis of 1997 that forced Seoul to turn to the International Monetary Fund for a $ 58 billion rescue package.

The government has ordered the top five conglomerates to reduce their debt-to-equity ratios to 200 per cent by the end of the year.

The Financial Supervisory Commission said Daewoo's reform progress has been extremely slow. The group had managed to raise only 4.3 per cent of the 136 trillion won it had pledged to deliver by the end of this year through asset sales and stock offerings.

Analysts said Daewoo group was forced to rely on short-term debt, such as commercial paper, as appetite for its high-yielding bonds began to wane due to growing credit risk.

''Until late last year, Daewoo could always find buyers for their bonds as they offered enticingly high yields for many fund managers who still did not know how to properly evaluate risk,'' said a fund manager at a local investment trust.

''But this demand has since disappeared and Daewoo has not been able to issue fresh bonds since late last year amid growing concerns of Daewoo group's survival,'' he said.

Tae chung, head of research at Hyundai Securities, said he expected creditors to help out Daewoo.

"If the creditors reject Daewoo's proposal it would only increase the confidence risk at all creditor financial institutions with exposure to the top five chaebol,'' he said.

Kim Min-Tae, an analyst at LG Economic Research Institute, said Daewoo's worries were far from over.

''Daewoo now appears extremely handicapped in negotiations to sell its affiliates, as the group disclosed its positions too much,'' he said.

Daewoo shares rose on the latest reform plan. Daewoo Corp rose 360 won to 7,200 and Daewoo Heavy Industries gained 190 to 4,900.

Business news