Daewoo agrees to dismantle itself

Demise of Korean giant is expected to cause others to reform

Pacific Rim

August 17, 1999|By LOS ANGELES TIMES

TOKYO -- Daewoo, a conglomerate whose dramatic ascent and troubled slide mirrored that of modern-day South Korea, agreed with creditors yesterday to effectively dismantle itself -- a watershed in the nation's economic reforms.

The demise of Daewoo, which had been approaching for weeks, is seen as fostering meaningful reforms among other conglomerates, or "chaebol," which have resisted many of the government's restructuring demands in the wake of the Asian economic crisis.

"Daewoo is providing a very good example of what will happen if they don't restructure," said Franklin Poon, economist with ABN Amro Asia.

Indeed, the settlement came a day after a tough speech by President Kim Dae Jung calling for stronger reforms at Daewoo and four other top chaebol -- Hyundai, Samsung, LG and SK -- which he said have been slow in restructuring.

Kim vowed to "become the first president in South Korean history to reform chaebol and straighten the economy so that it will grow on the basis of the middle class."

The Daewoo Group now faces the sale or disposal of 16 of its 22 companies by year-end.

Analysts say that, while the collapse of Daewoo, which accounted for 17 percent of South Korea's 1998 gross domestic product, is a jolt to the Korean economy, it probably won't trigger a domino effect of turmoil. In addition to resolving a long-festering problem, the forced sale could give the public a clearer look at the accounting tricks that South Korea's top chaebol have long been accused of using to dominate the nation's economy and target market share over profits.

"Daewoo is one of the last big problems for the Korean economy," said Seok Yun, equity director with CS First Boston. "Once they resolve this, the medium term is much brighter." In the end, South Korea's second-largest chaebol, a company once called too large to fail, ran out of time, cash and maneuvering room.

Over the past three decades, Daewoo grew to become one of the world's largest companies, with combined assets larger than the GDP of the Philippines. But with at least $50 billion in debts, Daewoo endured a worsening cash crunch in recent months amid fears that the collapse might push South Korean banks back over the edge.

South Korea is much better positioned than even a year ago, however, to endure this latest blow, analysts say, given a recapitalized banking system, rising stock market and improved reserves of foreign capital.

The fallen conglomerate, meanwhile, is attracting foreign buyers. U.S. investment fund Walid Alomar & Associates is eyeing a controlling stake in Daewoo Electronics for $3.2 billion, while General Motors Corp. could eventually buy much of Daewoo Motors for $3.5 billion.

Also expected are the sale of Daewoo Securities, Seoul Investment Trust and construction unit Keang Nam Enterprises, among others.

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