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Daewoo Motor is at end of rope

Posted November. 07, 2000 13:20,   


Daewoo Motor has reached the end of its rope.

Daewoo Motor failed to meet its obligation of 44.5 billion won that came due Monday. In response, creditors sent a final warning: "If an agreement is not reached with the labor union for restructuring of the company, bankruptcy proceedings for the company will begin on the afternoon of Tuesday."

However, the labor union has firmly countered that it would not agree to any restructuring without "the back wages of the workers being given."

As such, Daewoo might have to negotiate with General Motors as a bankrupt company.

Survival fight is day-to-day:

As of Nov. 6, Daewoo Motor faced 170 billion won in accounts payable coming due in a period of one week. Daewoo failed in a bid to meet with the 44.5 billion won in accounts payable Nov. 6 through fresh emergency loans from various institutions such as the Korea Development Bank.

"If Daewoo could produce an agreement with the labor union, we could make an effort to grant the loan to cover the 44.5 billion won," an official at KDB said.

The management at Daewoo, in order to alleviate its capital obligation pressure, laid off 3,500 employees at the end of last month and through sell-offs of affiliated companies abroad, offered a restructuring plan that could reduce Daewoo's obligations by 900 billion won. However, such a restructuring proposal did not even reach the creditors.

"The restructuring proposal is under review by professional consulting company Arthur Anderson for feasibility," KDB board member Park Sang-Bae said. "However, the final proposal must be accompanied by an agreement by the labor union."

Union talks unproductive:

While threatening bankruptcy, the creditors have called for an agreement by the labor union, as it is deemed pivotal for the resuscitation of Daewoo. The creditors of Daewoo feel that the failure in sales negotiation with Ford Motor resulted from the labor union's protest of the sell-off to a foreign company, as well as the union's call for five-year employment guarantee.

Accordingly, with the sale negotiation with General Motors on the horizon, there is a need to show a degree of flexibility in the employment situation.

With the situation turning head-first into the eye of the storm, the Daewoo management produced last year's agreement with the union to the restructuring, as the company was placed in a government workout program. However, it was turned down by creditors. Accordingly, the management pressed for the labor union's agreement on several occasions but was refused by the labor union.

"If we were to agree now, it would be the same as agreeing to take all responsibility for all of Daewoo's problems," the union responded.

Bankruptcy might be imminent:

"We simply cannot provide fresh loans," KDB Governor Uhm Rak-Yong reiterated Nov. 6.

With Daewoo's financial situation turning worse day by day, creditors have retracted all helping hands, as they have neither the will nor the justification for granting fresh loans.

The financial support provided by creditors to Daewoo since the workout program began in November 1999 amounts to 2.17 trillion won. Since the announcement by Ford Motor to back off from the sales negotiations in September, the creditors have refused to grant any new loans. At this time, without an agreement with the labor union, KDB effectively lacks any justification to encourage the 60 or so institutions constituting the Daewoo creditors.

"Even with the agreement by the labor union, we might not be able to escape bankruptcy," Choi Ik-Jong, head of a KDB team assuming full charge of Daewoo Group, said pessimistically.

Overseas holdings to be sold off:

Regardless of whether court bankruptcy proceedings begin for Daewoo, sales negotiations with GM will continue.

GM, which has wrapped up its first-phase audit of Daewoo and is working on a comprehensive report, has revealed it would make an official announcement of which branches of Daewoo it would offer to purchase.

"As the sales will be for the takeover of Daewoo's assets, whether the company is under normal operation or in court-receivership truly does not make a difference," a high-ranking official at Daewoo said. "(With the labor unions calling for employment guarantee) sales at this point might be nearly impossible."

Many have voiced their opinion that the sales might be facilitated by the bankruptcy proceedings.

Should Daewoo go bankrupt, about 741 primary parts supplier companies and 9,360 secondary and non-primary companies might face domino bankruptcies. The creditors deem such domino bankruptcies as unavoidable.