Daewoo's foreign creditors agree to debt recovery

Daewoo's foreign creditors agree to debt recovery

SEOUL (AFP): South Korean authorities and foreign creditors clinched a deal Saturday on the recovery of debts from the failed Daewoo Group after months of exhausting negotiations, an official said.

Oh Ho-keun, head of the Corporate Restructuring Coordination Committee (CRCC), said the two sides agreed the foreign creditors would retrieve some 39 percent of their loans to Daewoo Corp. and three major Daewoo units.

"We have reached a tentative agreement with them, under which we will buy some US$4.9 billion of their unguaranteed loans at a rate of a little bit more than 39 percent," Oh said on Seoul's YTN television from Hong Kong.

The payment, amounting to about $1.9 billion, would be made in cash, he said.

"This is a tentative agreement struck with the steering committee. We have to persuade other foreign creditors to take part in the debt buyout program," Oh said.

He said it marked a "watershed" in settling the debt crisis that engulfed Daewoo, once touted as the country's second largest conglomerate and a powerhouse of the Asian economic "miracle" of the early 1990s.

Daewoo, one of the most high-profile victims of Asia's 1997 economic crisis, collapsed last August under around $77 billion in debts run up through years of uncontrolled borrowing and rampant expansion.

The CRCC said foreign creditors would be able to collect 32.3 percent of their loans -- totaling almost $6.6 billion -- to Daewoo Corp., the group's flagship and trading arm.

The foreign borrowings by the numerous overseas branches of the three units would be classified into eight groups and would be repaid at ratios of between 31.5 percent and 95 percent.

South Korean creditor banks would jointly set up a corporation to buy Daewoo Group's foreign debt. In turn, the state-financed Korea Asset Management Corp. was likely to buy the foreign debt "at a market price," the CRCC said.

Under the agreement, South Korean creditors would present by mid-February details of debt rescheduling plans to foreign creditors, who will decide by mid-March whether they are acceptable.

The agreement sealed in Hong Kong after two days of meetings is the culmination of about five months of often tense negotiations in which the foreign creditors claimed they were being unfairly treated.

In response, the government threatened to force Daewoo Corp. into receivership unless a deal was struck swiftly.

Oh stressed the agreement helped cement the principle of equal treatment of all creditors, foreign and Korean, under which they had to bear some financial pain for their wrong lending decisions.

The Daewoo Group has $6.57 billion of foreign debt, including non-guaranteed debt of $4.84 billion, $1.3 billion of guaranteed debt and $430 million of other liabilities owed by its overseas branches.