August 27, 1999 
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| August 27, 1999 | atimes.com | |
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| The Koreas Daewoo crumbles as creditors take over operations SEOUL - South Korea's second-largest conglomerate, the Daewoo Group, has finally crumbled, with nearly half of its 25 affiliates facing a bailout program from banks. Creditors chose 12 Daewoo units, including flagship companies Daewoo Corp, Daewoo Motor and Daewoo Heavy Industry as workout targets Thursday. The government and creditors decided that they cannot entrust restructuring to Daewoo or wait any longer for workouts, with key companies and their subcontractors fighting with defaults every day. Creditors provided new loans of 4 trillion won ($3.3 billion) to the conglomerate on July 19 and rescheduled existing loans, but to no avail. Sales and production continued to suffer due to a lack of confidence and most Daewoo companies found it hard to recall deferred payments. Banks continued to refuse to settle bills of Daewoo's subcontractors, despite the government's plea. Daewoo's main creditor, Korea First Bank, injected call loans worth 2 trillion won, which dried up almost immediately. Creditors also agreed to carry out workout arrangements ahead of schedule, due to slow progress in attempts to sell off Daewoo's assets. Potential buyers waited for Daewoo's corporate value to hit rock-bottom and for the group to get more desperate to sell. The workout program buys Daewoo companies three more months to recover. They are relieved from debt pressure during this period. Creditors will be controlling things from now on, accelerating sales efforts and in return injecting new funds and swapping debt for equity if necessary to revitalize sales and production. Subcontractors can also see business return to normal, as banks will accept Daewoo's commercial papers. The restructuring outline remains the same as the one announced last week under the workout arrangement that calls for getting rid of all affiliates not related to auto production and sales. Daewoo, which once operated over 40 businesses, may be left with one trading arm at the end of the day if General Motors demands management control in return for equity investment in Daewoo Motor. Group chairman Kim Woo-choong and other incumbent executives can retain their seats but must follow orders from managers sent by creditors under the workout program. But there is still a big possibility that management by banks may end in failure, dumping everything on creditors. There are too many creditors, if non-banking and corporate individuals are included, to lead the restructuring. Daewoo also has nearly 200 foreign creditors. Financial Supervisory Commission Chairman Lee Hun-jai said Daewoo would be made an exception to include bonds and commercial papers in the debt workout in an attempt to calm protest from investment trust companies. Daewoo's bond and CP issuance reached 22 trillion won in June. Foreign creditors, who hold 10 percent of Daewoo's debts, may also be unhappy with the workout decision. Labor concerns also pose a major problem. Employees may lose morale under a bank management and those working for Daewoo companies that were excluded from the workout program may also protest against the threat of going under court receivership. (Asia Pulse/Yonhap) | |||||||||
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