Kia nationalization plan unaffected by IMF bailout

Kia nationalization plan unaffected by IMF bailout

SEOUL (AFP): South Korean plans to nationalize the insolvent
Kia Motors Co. has not been affected by the International
Monetary Fund (IMF)-induced restructuring program, a senior
official said yesterday.

Vice finance and economy minister Kang Man-soo told
journalists that the state-invested Korea Development Bank (KDB)
would convert its loans to Kia worth 320 billion won (US$262
million) into equity shares.

The KDB is preparing to organize a meeting of Kia shareholders
to reach a final decision on the issue, he said.

Kang stressed that the conversion of debt into shares would
not constitute a government subsidy, banned by the World Trade
Organization.

The IMF did not object to the move during negotiations over
the 60-billion-dollar bailout for Seoul, he said.

But Yonhap News Agency said Kia, which collapsed in October
under more than nine trillion won ($6.4 billion) in debt, could
not be nationalized this year as initially planned by the
government because of the ongoing financial crunch.

Even when Kia becomes a state corporation, it may be
eventually sold off to a private firm, it said.

Finance and economy ministry officials said it would be up to
the next government, which takes office in February, to decide
whether to maintain Kia as a state company or sell it to the
private sector.

Meanwhile, car production at Kia Motors ground to a halt
Tuesday after subcontractors and suppliers stopped providing
parts and demanded cash settlement of Kia's outstanding bills,
Yonhap said.

The developments came as South Korea's over-invested
automobile industry entered into a drastic restructuring.

In the first major industrial takeover since the IMF bailout,
the Daewoo Group on Monday announced its purchase of a 53.5
percent stake in the jeep-maker Ssangyong Motor Co. and $1.6
billion of its debt.

The takeover will immediately boost the annual production
capacity of Daewoo Motor Co. from the current 1.06 million units
to 1.28 million units.

The deal is expected to speed up the shake-out of South
Korea's auto industry, centered on the giant Hyundai Motor Co.
with an annual production capacity of 1.65 million cars, and on
the second strongest Daewoo Motor Co.

Commentators said Samsung Motor Co., which has invested 2.6
trillion won ($1.8 billion) to muscle into the field, faced a
dilemma over whether to pursue its plan to invest another 10
trillion won to build up its capacity to one million units
annually, or bow out of the business.