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Lesson from Dong-Ah`s bankruptcy

Posted March. 09, 2001 19:19,   


It was inevitable that the Seoul District Court would order Dong-Ah Construction Industrial into court receivership, despite the negative impact the construction giant`s collapse will have on the national economy. The court`s decision was all but preordained considering that a related accounting firm analyzed that Dong-Ah`s liquidation value was about 200 billion won higher than its value as a going concern. The court declared that maintaining a nonviable enterprise through bank loans would only put a further financial burden on taxpayers. But there is no way to retrieve the three trillion won in public funds that was already funneled into the construction company through syndicated bank loans and debt-for-equity swaps.

The reason for the collapse of this promising construction company, which saw rapid growth thanks to its role in a massive Libyan irrigation project, was lax and corrupt management of the firm by its former chairman Choi Won-Suk. After he stepped down from the top post, the rotten root of his quasi-imperialist rule was laid bare. His position had been protected through his collusion with highly placed politicians. Although Dong-Ah once ranked as the nation`s 10th largest firm, Choi was ranked second in terms of the amount of money he contributed to former presidents Chun Doo-Hwan and Roh Tae-Woo.

It has been revealed that from 1988 to 1997, the company falsified its financial records to the tune of several trillion won. The largest shareholder, who exercised monopolistic managerial power, was hell-bent on inflating the corporate profits in order to obtain enormous bank loans. Now that the Financial Supervisory Service and the prosecution launched probes into these irregularities, the truth surrounding the scandal should be brought to light and those responsible for the wrongdoing punished to the fullest extent of the law.

Dong-Ah continued with its illicit methods even after the firm was placed under a workout program. The new executives who were appointed by creditor banks formed huge slush funds and distributed the money to influential politicians. In collaboration with his remaining stooges within the company, ex-chairman Choi attempted to return to the top post.

The liquidation of the construction firm is appropriate, yet worrisome is the fate of the Libyan project. The Libyan government filed suit in a Korean court, demanding $6.2 billion in compensation on the

assumption that Dong Ah would fail to implementate the ongoing second-phase of the huge project. Middle East nations, which have earned enormous profits from soaring oil prices, are moving to offer more foreign companies the chance to participate in engineering and plant projects, and as a result, Korean construction companies are increasingly winning orders from these nations. Under the circumstances, if the Libyan irrigation project hits a snag, international confidence in Korean firms is sure to fall.

Since about 95 percent of Dong-Ah`s Libyan waterway project has been completed, it is essential for related government authorities to work out effective means to finish the job. It should also ensure that there is no obstacle to the completion of the light-water reactors in North Korea, as Dong-Ah has a 20 percent stake in the consortium that is heading the project.