Chaebols vow to restructure

Chaebols vow to restructure

SEOUL (Reuters): Three leading South Korean conglomerates, or chaebol, vowed yesterday to restructure by shelving multi-billion dollar overseas investment projects and ending a risky financing practice that often keeps weak companies in operation.

They also said they would speed up efforts to cut off unprofitable units, spin off secondary businesses and sell idle assets to improve their financial status.

The largest chaebol, the Hyundai Group said it was shelving plans to build an integrated steel mill in South Korea, a $5 billion semiconductor plant in Dunfirmline, Scotland, a $150 million joint-venture car plant in Indonesia and a giant office building in Beijing.

"We will do our best to improve our financial status and to ensure transparency in management," a group statement said. "To be competitive in the 21st century, a strong restructuring of management is necessary."

As recently as last month Hyundai said it would go ahead with the plan to spend billions of dollars to build the steel mill in the southern city of Hadong.

Hyundai fought criticism not only from the government but from the country's sole integrated steel mill operator, Pohang Iron and Steel Co, that the scheme would lead to a severe domestic oversupply of crude steel.

The first phase of the semiconductor plant in Scotland had been scheduled for completion at the end of 1998. Hyundai said it did not know yet when the project might be restarted.

Analysts say South Korea's current debt crisis stems from excessive capacity expansion by chaebol. The International Monetary Fund, which bailed out South Korea last year with huge loans, recommended that the country should slow its economic growth and improve corporate efficiency.

The Hyundai spokesman said that by March 1998 the group would also clear the guarantees that its units had made for each other's debts.

The third-largest conglomerate, LG Group, said it would clear such guarantees by the end of 1999.

Analysts say the practice of offering debt payment guarantees among units of the same chaebol had enabled chaebol owners, with only a small direct ownership, to wield strong influence on decision-making by member companies.

They say even a company with negative net worth could get loans under payment guarantees by healthy sister companies, worsening the financial status at all the same group's units.

And loss-making units could not be allowed to fail, since they might drag their guarantors down with them.