Daewoo Motor sale to GM is bumpy road

The negotiation for the sale of Daewoo Motor between Korean creditors and the General Motors-Fiat consortium has begun, but it won't be an easy deal.

It is not a deal that the creditors will select one of the bidders but a solo negotiation, so it is likely that GM will have a predominant power in the deal.

Also, the news that GM has submitted a letter of intent was released from government officials, not from the Korea Development Bank, the main creditor bank. It means that many parties are involved in the deal, which could serve as an obstacle.

Initially, the GM-Fiat consortium will negotiate with creditors while conducting inspections of Daewoo's domestic and overseas subsidiaries. It will examine whether the company is worthwhile to buy.

Officials of Korea Development Bank anticipate that the primary inspection will be completed in two to four weeks. It is a custom to conclude a memorandum of understanding after the primary inspection. A precise inspection will be followed by a formal contract.

An official at Korea Development Bank said that the memorandum of understanding could be exempted in accordance with the negotiation and culminate in a formal contract, noting that GM officials did not specify a detailed schedule for negotiation.

GM indicated interest in a blanket purchase of Daewoo Motor, but it is unlikely that GM will take over Daewoo's entire operations, including Ssangyong Motor, Daewoo Capital and Daewoo Telecom's Boryung plant, as well as 36 overseas subsidiaries.

Previously, Ford was reluctant to undertake some of Daewoo's domestic subsidiaries.

An official in the creditors' group said that GM was showing interest in Daewoo Motor because it would enable the company to secure an outpost for the Asian market, so overseas subsidiaries and insolvent domestic operations might be excluded from the target of GM's purchase.

Another problem is that there are too many cooks. In fact, GM and Korea Development Bank were supposed to jointly announce that GM had submitted the letter of intent for purchase of Daewoo Motor. Yet Lee Keun-Young, head of the Financial Supervisory Commission, released the news ahead of the joint announcement, embarrassing the creditors. It seems that the FSC does know the basics that what is agreed between the two parties has to be strictly kept in secret.

It is a prevailing opinion in the financial circle that the FSC head's unexpected behavior could hamper the negotiation for sale. Even within Korea Development Bank, the executive who is in charge of the sale is frequently replaced, causing a confusion.