Daewoo seeking GM alliance

Daewoo seeking GM alliance

By Zeno Park

SEOUL (AFP): South Korea's Daewoo Group said over the weekend it was seeking an alliance with U.S. giant General Motors Corp. in a move aimed at buoying its balance sheets and staving off a possible collapse.

But analysts dismissed the announcement as "shallow" saying it was aimed at reassuring Seoul's government and creditors of the debt-ridden group, some of whom fear they may not recoup billions of dollars in loans.

Daewoo Motors Co. and GM signed a memorandum of understanding (MOU), under which, Daewoo said, the U.S. giant could take over the ailing group's auto unit in a move which would bring Daewoo vital liquidity.

"With the exchange of MOUs, the two companies agreed to step up talks on a strategic alliance in all possible fields," Daewoo Group said in a statement, adding that any of its auto-making units could be targeted.

"The two companies decided to withhold details from the public until negotiations are completed," it said.

Daewoo Motors President Kim Tae-gou said the alliance could include a possible takeover of Daewoo Motors by GM. He did not reveal how large a stake GM might take, but reports said it could exceed 50 percent.

"The issue of managerial control will also be included in the main agenda for negotiations," he told journalists after signing the MOU with GM Korea president Alan G. Perriton.

Perriton did not rule out the possibility of GM taking over Daewoo Motors. Nor did he confirm any such plans.

"The memorandum of understanding is a document that says that GM and Daewoo agreed to explore opportunities that exist for strategic relationships for each other, and it does not say the outcome is pre-determined," he said.

He added that the two sides would move as quickly as possible to help Daewoo Group complete its restructuring, pledged by Daewoo last month in return for a $3.3-billion loan lifeline from local banks.

A takeover of its auto unit could bring some $4 billion to cash-strapped Daewoo, which has pledged to sell off units to raise funds as it teeters on the brink of collapse, the Kukmin Daily speculated.

GM and Daewoo Motors began talks on forging a tighter, more wide-ranging alliance in February last year but the negotiations were stalled by South Korea's financial crisis.

The two firms have had a string of tie-ups in the past under which GM supplied Daewoo with plans for vehicles and they jointly developed the Le Mans passenger car.

But analysts and stock market investors in Seoul shrugged off the announcement as cosmetic and lacking in any substance, saying the move amounted to "talks about talks".

"It's an old tactic used by other groups here of saying you are talking to potential foreign investors in order to reassure creditors and persuade them it would be good to roll over loans or to extend new ones," business consultant Hank Morris said.

If carried out, Daewoo's restructuring would mean the dismantling of South Korea's second biggest conglomerate, or chaebol, which is staggering under the weight of an estimated $51 billion in debt.

Foreign creditors, who are owed $9.9 billion, have threatened not to roll over Daewoo's loans unless they receive the same treatment as local banks who were last month offered $8.3 billion in fresh collateral, raising fears of a possible foreign debt moratorium.

The government is anxious that Daewoo restructure itself urgently to avoid dragging down the South Korean economy just as it pulls out of its worst economic crisis in decades.

Lee Hun-jai, head of the Financial Supervisory Commission, said the restructuring of the Daewoo Group was making progress. He noted that Daewoo had also signed a memorandum of understanding to sell its electronics unit to U.S. investment firm Walid Alomar for more than $3 billion dollars and was seeking to spin off and sell its giant shipyard.