The fatigued Daewoo group, ridden with debt
and facing dismemberment, will soon have to be content
with being just a car company. The creditors initiating
the financial restructuring of the group have finalised
a plan that ensures dismantling Korea''s second largest
industrial group virtually into a six-unit car business.
The restructuring plan cleared by the creditors will be
implemented by 1999-end to enable the group to attain a debt-to-equity ratio of 196 per
cent against the 527 per cent it had in end-1998.
The six units of the current 22 to be retained by the
group are: the unlisted Daewoo Motor, Daewoo Motor Sales, the trading division of Daewoo
Corporation, the car-related business of Daewoo Telecom, the machinery division of Daewoo
Heavy Industries and the unlisted Daewoo Capital.
The plan may ultimately lead to Daewoo holding just Daewoo
Corporation. The reason: Daewoo Motor, which runs the core of the group''s car business,
may go to General Motors.
Creditors said the remaining businesses and affiliates
will be spun off or sold. The creditors plan to take over the profit-making brokerage firm
Daweoo Securities, which is South Korea''s largest brokerage unit, and then sell it.
Meanwhile a US investment firm has agreed to buy some
assets and operations of group company Daewoo Electronics at an estimated $3.2 billion.
Announcing that Walid Alomar & Associates of the US has signed a preliminary agreement
for acquisition of the assets and operations, president of Daewoo Electronics Yang
Jae-yeol said the group''s creditors and shareholders will have to approve the deal before
it can be implemented.
The Daewoo group controls 5.4 per cent of Daewoo
Electronics stock, but has retained control so far since over 60 per cent of the stock is
held by individuals. Analysts conversant with Daewoo affairs describe the scenario as
Mr Yang said while announcing the deal that Walid Alomar,
son of a former Saudi minister, has already formed what is called a New Daewoo Electronic
on 6 August in the US. The deal envisages that the New Daewoo Electronics will take over
Daewoo''s plants and sales networks, which Daewoo has valued at $3 billion, in Western
Europe, North and South America, Japan, Korea and Australia. Daewoo will continue to keep
its plants in China, the CIS countries, Middle East, Africa and South East Asia, which are
valued at $2.5 billion. What is intriguing is Mr Yang''s statement that Daewoo will manage
both the old Daewoo Electronics and the New Daewoo Electronics, including the operations
and research and development functions.
The Financial Supervisory Commission, South Korea''s
powerful financial watchdog, and the group''s creditors have been advocating that the group
must retain only its car business by the end of the year. Analysts following the Daewoo
debacle are, however, not optimistic about the single unit proposal. Even if Daewoo sells
or spins off all its sprawling operations, the remaining car business will continue to
face severe financial troubles, they say. They are also not very optimistic about several
units finding prospective buyers.
Financial Supervisory Commission chairman Lee Hun-jai says
that if required the government will bring in public funds to the group''s creditors so
that the restructuring programme is initiated.
The creditors have suggested that they must have the
option of liquidating the 10
trillion won collateral. They may also put Daewoo affiliates under "work-out"
programmes or move to liquidate them if the group delays implementing the reforms.