SEOUL--Corp., with alliance partner SpA, intends to present a summary of its proposal for the purchase of some or all of the assets of insolvent Daewoo Motors Co. Ltd. to the state-owned Korean Development Bank within the next two weeks, Ward’s Automotive International has learned. KDB is Daewoo’s main creditor. The meeting could take place as early as May 18.
GM’s board of directors in Detroit approved the plan presented by Alan Perriton, executive in charge of acquisitions and mergers for Asia/Pacific, on May 2, Ward’s is told.
GM’s proposal is complex and will require extensive negotiations, sources say. Should GM receive a general acceptance of its proposal by KDB and various government ministers involved, it then will work with Daewoo on the specific language of the offer. Extensive talks with creditors are expected to begin as early as May 21.
A Daewoo official tells Ward’s the Korean automaker currently is in talks with labor union leaders to create a declaration that both sides intend to work harder to become self-sufficient, something GM will require in its proposal. Daewoo in recent months has cut a third of its labor force to make itself more attractive to GM and in April announced its first monthly operating profit in three years.
GM’s demands also will entail guarantees from Daewoo and its creditors that any production plants included in the deal be maintained by a stable, non-volatile labor force, and that the GM alliance will bear no financial or administrative burden regarding layoffs, Ward’s is told.
Insiders say the proposal will revolve around a long-term financing package that “is fair to all parties,” given the substantial investment that GM will have make to bring Daewoo up to it former level of competitiveness.
Korean press reports say GM intends to purchase the assets of Daewoo Motor Sales Ltd., the sales arm of Daewoo Motor Co. Ltd., but sources say that the reports are speculative and that GM has yet to disclose the extent of its interest in the Korean automaker.
Korean reports further suggest that GM intends to propose the formation of a joint venture with Daewoo creditors, and will invest US$3 billion to build an engine plant. The JV also would acquire Daewoo's sales and after-service networks, as well as Daewoo’s state-of-the-art Kunsan car plant. GM would hold 51% of the JV and Daewoo creditors would hold the rest through a debt-to-equity swap.
Shares of Daewoo Motor Sales reportedly have tripled this year, much of it based on speculation of the pending GM offer. The Korea Development Bank has refuted such reports, however, saying it would not consider a debt-to-equity swap and considers a foreign sale as the only option. The automaker's fate has lain in the hands of creditors since the banks stepped into to rescue the insolvent company in late 1999. KDB maintains Daewoo’s assets are worth only half of its total debts, making a debt-swap meaningless.
However, a bank spokesman says in a published report that KDB expects Daewoo to operate without financial support beginning in the year’s second half, following receipt of the remainder of the promised US$554 million in new creditor loans.
Daewoo, which has capacity to build 1 million cars annually in the domestic market, said this month that its net loss nearly tripled in 2000 to 13.7 trillion Korean won (US$10.4 billion) mostly due to overseas losses. The automaker has 12 plants in 11 overseas countries that include Poland, Hungary, India, Romania, Uzbekistan and the Ukraine.