Daewoo Motor¡¯s future is uncertain

As Daewoo Motor has gone bankrupt, the future of the nation's second largest automaker is unclear, including the potential purchase of the company by General Motors.

The government is considering whether to normalized operations of Daewoo Motor and 11 other Daewoo affiliates, and sell assets to Korean and overseas buyers through a corporate restructuring vehicle, although any corporate restructuring vehicle (CRV) would exclude those companies that already found buyers.

All loans provided to Daewoo companies will be transferred to the CRV. Korea Asset Management Corp., Daewoo's largest creditor, creditor banks, evaluation firms and overseas financial specialists will establish Daewoo CRV. Already, Goldman Sachs and GE Capital have expressed interest in the projected CRV, which would be set up by the year¡¯s end.

If creditors are unified through the CRV, there is no need for adjustment of opinion among creditors, thus facilitating the decision-making process. Creditors also can cash their non-performing loans, and they could sell CRV stocks at decent prices if relevant companies¡¯ operations are normalized.

It is an approach that the government adopted for the sale of Korea First Bank to New Bridge Capital of the United States.

It is likely that Goldman Sachs and many other foreign financial institutions will take part in such a plan because they are keen on the Korean non-performing loans market.

However, some financial institutions maintain their position to sell their non-performing loans not only to a CRV but also to Loan Star and other foreign venture funds. So it is necessary to reach agreement among creditors.

Korea Development Bank considers that it would be very difficult to negotiate with GM for the sale of the company as long as its trade union refuses to agree to the projected restructuring plan.

Even if GM acquires Daewoo, the American auto giant might try to buy the company at a very low price. For this reason, the government is planning to set up a CRV. If Daewoo's sale is sought through a CRV, participating foreign institutions would look for a foreign buyer other than GM.

Government officials say that there is no satisfactory solution through a single negotiation, noting that creditors will be able to sell the company at a proper price if they normalize operations of the company.

With Daewoo's bankruptcy, it will be inevitable that nearly 10,000 subcontractors will go bankrupt, as well, because they can hardly collect payments. Creditors plan to ask the government to offer special guarantees on promissory notes they received from Daewoo.

"It is impossible to keep all of Daewoo subcontractors afloat,¡± a senior official of Korea Development Bank said. ¡°When Kia Motors went bankrupt, its subcontractors increased exports through their own efforts to survive."

For this reason, it would be vital for subcontractors of Daewoo to avoid liquidation through cost-cutting efforts, technology development and improvement in productivity.