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.