Daewoo Awaits Big Purge

The Kyiv meeting endorsed a schedule of measures to remove all obstacles that have caused ineffective performance of the AvtoZAZ joint venture over the past six months. As Vadym Liashchov, Deputy Minister for Industrial Policy, who took part in the talks, told Interfax-Ukraine, the Ukrainian and Korean parties will put forward the candidacies of new top executives for the venture as soon as next week in order to ensure effective management. Mr. Liashchov asserts, "all issues in dispute have now been sorted out, and all are interested in the work of this joint venture," so the Ukrainian side thinks there are no reasons why Daewoo should not meet its investment obligations.

Our authorities may have really removed some obstacles for the corporation to take hold of the Ukrainian market. However, judging by Western media reports, The Day's assumption still remains in force that Daewoo treats the Ukrainian question as secondary and the company's intention to stay on in Ukraine depends on non-Ukrainian factors.

It became known last week that the international Standard & Poor's lowered its securities rating for the group's parent company, Daewoo Corporation, to B last week. This means any operations with the company's shares are risky, for they are dominated by speculative actions and subject to price variability. This decision was caused by the agency's preoccupation with the corporation's financial status. According to Standard & Poor's, if Daewoo is unable to reduce its debts and shed underperforming businesses (which now include those in Ukraine), its rating may fall further.

Having received such a negative assessment, Daewoo in a few days made public a restructuring plan worked out jointly with creditor banks. As The Financial Times reported April 19, Daewoo plans to halve its $49 billion debt this year by cutting the debt/equity ratio to a governmental target of 200% by the end of the year (at the beginning of the year this figure was 355%). However, experts are not sure these calculations are correct, for the amount of debt does not include the consolidated debts of almost 600 foreign businesses of the Korean conglomerate. So the recalculated debts may thus constitute as much as 500% of company assets.

The main revitalizing measures include selling assets, issuing new equity and securing foreign investment. In 1998 Daewoo signed a memorandum with Newbridge Capital (USA) to sell 60% of a subsidiary telecommunications company also producing computers and automotive spare parts. Daewoo is also negotiating to sell Hankuk Electric Glass, a leading global maker of glass bulbs for cathode-ray tubes, to Nippon Electric Glass of Japan. Other proposed deals are to sell its heavy-industry and shipbuilding companies and swap assets with Samsung.

Since Daewoo is Korea's second largest (after Hyundai) and the world's seventeenth automaking company, it is logical that the corporation's management have decided to concentrate on expanding its automotive business. Indeed, a successful reorganization of this Korean chaebol would make car-making Daewoo's main industrial business. However, this choice is very expensive. Betting on auto operations already pushed the consolidated debt by 40% last year. Will Daewoo be able to get out of the debt pit well before the international community loses faith in its management's business acumen (for ratings symbolize faith)? Will it be able to shed its unnecessary assets to advantage? Such questions are difficult to answer because the corporation began reorganization in 1997, and it is still without visible results. In general, it is also impossible for the same reason to answer the question: which problems does the Ukrainian side of the Daewoo joint venture consider solved for itself?