labels: passenger cars, daewoo motors india
Daewoo will be an ex-conglomeratenews
17 August 1999

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 complicated.

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.

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Daewoo will be an ex-conglomerate