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Daewoo-GM alliance to have no bearing on ventures in India

The strategic alliance between General Motors Corporation and Daewoo Motor Company would not have any immediate bearing on their respective Indian ventures like Daewoo Motor India Limited.

Though both the global auto majors have reached an alliance on restructuring the debt-ridden Daewoo Motor Company, serious negotiations on the same are yet to commence.

Tae-Gou Kim, president of Daewoo Motors, stated that the alliance was limited only to the passenger car business at home and abroad. Senior GM officials said the alliance is unlikely to have any impact on the Indian operations of both the automobile giants.

''The memorandum of understanding reached today is aimed at only the Korean market,'' GM officials maintained.

Earlier in the day, the automaking unit of South Korea's embattled Daewoo Group had announced in Seoul that it was willing to give up managerial rights to GM in an effort to reach an alliance.

''The talks can even include the handover of Daewoo's management right to GM,'' Daewoo's president Kim said. Though GM officials stated that management control could figure in the ''serious discussions'', the US car major was not keen on totally buying out Daewoo.

Alan Perriton, president of GM Korea, said the two sides are looking to finalise the deal as quickly as practicable, but declined to say whether it would be wrapped up by the end of the year.

''The MoU is aimed at making further progress in the earlier agreement Daewoo and GM reached in February 1998,'' said Kim. ''We agreed serious strategic talks which will benefit both.''

Daewoo has negotiated with GM about a possible stake sale or strategic alliance since the earlier agreement, with the talks covering a wide range of alliances including financing and sales. But they failed to make much progress.

Daewoo said it began renegotiating with GM this year after an attempt to attract equity participation failed some time last year.

According to industry analysts, Daewoo Motors offered about a 50 per cent stake in the company to GM for about $ 7 billion.

On the other hand, Daewoo Motors will invest $ 100 million in its Indian affiliate to raise its stake to 96 per cent from 91.3 per cent.

Daewoo Motors confirmed that it will invest in the Indian affiliate, but the exact time has not been decided yet.

After it was hit hard with liquidity crisis and requested emergency aid from its domestic creditors, Daewoo will have to make a serious concession -- far less than $ 7 billion it originally sought for GM to take the deal, said Lim Chae-Koo, an auto industry analyst at LG Securities.

Lim said that it would be very difficult for Daewoo to invest in an overseas affiliate without creditors' approval, so it is possible to speculate that a deal with a foreign investor may be nearing an end.

The Daewoo Group earlier agreed with its domestic creditors to complete restructuring, including dealing with Daewoo Motor, by the end of this year.

Within the memorandum of understanding (signed today), GM has not asked for more than a 50 per cent stake in Daewoo Motor but the size of the stake will be adjusted to facilitate a speedy resolution to the alliance negotiations, Kim said.

Industry analysts said one of the stumbling blocks in previous negotiations between the two parties stemmed from Daewoo's reluctance to offer up more than a 50 per cent stake to GM, but Kim's comments today suggest Daewoo may have softened this stance.

Kim added that in the past, negotiations with GM had covered a wide range of the Daewoo group's activities, including shipping and financing. However, the MoU signed today limits the scope of the negotiations to Daewoo Motor's domestic and overseas passenger car operations.

Daewoo Motors said its domestic and foreign assets currently total 28-30 trillion Korean won, but industry sources estimate the assets at only a little over 10 trillion won. The Korean automaker also said total capital stands at around 5 trillion won.

The Daewoo group is facing a liquidity crunch. On July 19, it asked its domestic creditors to roll over 12.4 trillion won in short-term debt and extend 4 trillion won in new credit. In that request, the Daewoo group said it would shed almost all of its affiliates and focus its business on Daewoo motor and trading company, Daewoo Corporation.

The South Korean financial markets remain plagued by uncertainties about the attempts of the country's second largest chaebol (family-held Korean mega business houses) -- the Daewoo Group -- to rollover its $ 5.5 billion short-term foreign debt. Foreign creditors continue to demand a payment guarantee from the government or additional collateral.

However, it is unclear how the issue will be resolved after the Financial Supervisory Commission said the government will not repay private debt, such as that held by Daewoo.

The stock market has continued to fall, losing about 30 points during the week to end at 938.26 today. The three-year corporate bond yield rose 28 basis points to 9.50 late today due to uncertainties generated by Daewoo's liquidity crisis.

On July 19, the Daewoo Group requested its domestic creditors to roll over 12.4 trillion won in short-term debt and extend 4 trillion won in new credit in exchange for 10 trillion won in new collateral and a much strengthened restructuring programme.

On July 23, Daewoo sent letters to about 70 of its foreign creditors asking them to roll over $ 5.5 billion in short-term debt.

In response, foreign creditors sent an open letter to the government and Daewoo demanding collateral or a payment guarantee by the government for rolling over Daewoo's debt.

The FSC responded by saying that the 10 trillion won in new collateral is intended for the 4 trillion won in new credit, not the existing debt.

All creditors will be treated the same, so if foreign banks want a part of the 10 trillion won, they would have to provide new loans, FSC chairman Lee Hun-Jai said.

In addition, Lee stressed that Daewoo's debts are private debts, so neither the government nor domestic banks are responsible for the debt if Daewoo ultimately defaults on them.

In order to assure that foreign investors rollover short-term debt, Daewoo announced that it will hold a meeting for its foreign creditors and major foreign financial institutions on August 18. A Daewoo spokesman said the group will reveal the size of its foreign and domestic debt and unveil its restructuring plans.

UNI (in association with Reuters and Bridge News)

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