Daewoo agrees to pare down to focus on autos

Daewoo agrees to pare down to focus on autos

SEOUL (AFP): South Korea's second biggest conglomerate Daewoo Group agreed Monday to shed three quarters of its debt-ridden empire to focus on its auto business in a last-ditch bid to survive.

The conglomerate, or chaebol, bowed to pressure and signed a long-awaited pact with creditors to sell off all but six of its 25 units by the end of the year in a bid to raise desperately needed cash to offset its massive debts.

The agreement set a strict timetable for the reform-shy group to separate its most profitable subsidiaries and sell them off, leaving only its key auto-related units, the Financial Supervisory Commission (FSC) said.

"Daewoo Group will be reduced and reorganized as a conglomerate specializing in the auto industry with a total of six subsidiaries, four of which are auto-related, while the other two units support them," the FSC said.

The unraveling of the 32-year-old giant will leave the group with Daewoo Motor Co., Daewoo Motor Sales Co., Daewoo Telecom, Daewoo Capital Co., Daewoo Corp.'s trading arm and Daewoo Heavy Industries' machinery division.

The move leaves Daewoo, wallowing in more than 51 billion dollars of debt, to recreate itself as an auto giant, the FSC said.

Under the plan, Daewoo yielded to demands that it sell its money-spinning securities brokerage, its investment trust firm and its construction business along with Daewoo Electronics and its shipyard.

The six remaining units will have total assets of 56 trillion won (US$46.6 billion), equity of 23 trillion won, debts of 33 trillion and a debt-to-equity ratio of 196 percent, financial watchdogs said.

Creditors will initially take over the chaebol's cash cows, Daewoo Securities Co. Ltd. and Seoul Investment Trust Co. Ltd., before selling them off, to avoid disruption to financial markets.

Daewoo Securities, the group's main source of financing, must be handed over by the end of September, creditors said, along with Daewoo Heavy Industries' shipbuilding operation.

If the group fails to observe the bank-designated deadlines for divestment of the units, creditors will start liquidation of the units and initiate workout proceedings or collateral sales.

But financial watchdogs said the ultimate fate of the group lay in its negotiations with U.S. giant General Motors Corp. (GM) over a strategic alliance with Daewoo Motor.

Daewoo is currently in talks with GM which could reportedly lead to the sale of a majority stake in Daewoo Motor for an estimated $3.5 billion.

If the deal goes ahead, Daewoo will become a trading firm whose survival will depend on the progress of restructuring, the FSC said.

The process of disbanding Daewoo began in earnest Friday when the group agreed to sell Daewoo Electronics Co. Ltd. to a U.S. investment firm for $3.2 billion, a process that must be completed by end-September under the plan.

Creditors have been charged with carefully monitoring the group's progress in selling off key subsidiaries following disagreements between the authorities and the group over the schedule for the sales.