Daewoo's creditors to get debt collateral

Daewoo's creditors to get debt collateral

SEOUL (AFP): Foreign creditor banks will get US$830 million in
debt collateral set aside by South Korea's crumbling Daewoo
Group, receiving priority over local counterparts, officials said
Monday.

The government-controlled corporate restructuring committee
said local creditors had decided to pass on to their foreign
counterparts 10 percent of the 10-trillion-won (US$8.3 billion)
collateral provided by Daewoo.

The decision is aimed at appeasing discontented foreign
creditors before finalizing the government's rescue program for
Daewoo, the country's second largest conglomerate.

"Six major local creditor banks have already informed the
foreign banks of the decision," a committee official said, adding
local creditors would divide the rest of the collateral among
themselves.

Foreign creditors hold an estimated 10 percent of Daewoo's
total debt including five billion dollars in borrowing from
foreign institutions.

Foreign creditors did not oppose a debt roll-over but demanded
preferential treatment over domestic creditors and a government
guarantee.

Daewoo's officially reported debt reaches 43.4 trillion won at
home and $9.94 billion abroad, with $5.48 billion maturing by the
end of this year.

Local creditors have been under pressure to speed up the
rehabilitation scheme, as investors remained nervous over a run
on funds at investment trusts and other institutions.

The committee said Daewoo's exact assets, liabilities and
creditor losses would be disclosed next week when due diligence
investigations on Daewoo are complete.

But local newspapers, citing preliminary due diligence, said
creditors might incur losses equivalent to between 20 to 50
percent of their exposure to core Daewoo units.

The report rattled the stock market, sending the main index
plunging 2.5 percent to 798.84.

"What the market had expected (for the loss ratio) was about
30 percent. Fifty percent was well above expectations," Good
Morning Securities Lee Sang-Ho said.

"The market will remain weak until due diligence into the
Daewoo units is completed."

Analysts fret that the rescue plan could be delayed because of
disputes between investment trusts and others institutions over
how to share losses from Daewoo bonds.

Many of the country's 24 investment trusts worry they will end
up with negative assets or a closure of their business if their
share of losses increases. They insist they must share losses
only within their capital stocks.

Investment trusts are the largest holders of non-guaranteed
Daewoo bonds, triggering fears of massive redemptions when
creditors begin implementing rehabilitation plans for Daewoo in
early November.

Investors have been skeptical of the government's pledge to
prevent a run that would prompt investment trusts to sell stocks
and bonds to raise money to pay customers.

From Nov. 10, customers are guaranteed to redeem 80 percent of
their investment tied in the form of beneficiary certificates at
investment trusts which hold unsecured Daewoo bonds worth 25
trillion won by conservative accounts.