SEOUL, April 11 (UPI) -- Daewoo Motor Co. creditors have struck a deal to sell the bankrupt carmaker's core assets to General Motors Corp., clearing the way for South Korea to restructure its troubled auto industry.
Daewoo's troubles were a big burden on President Kim Dae-jung's government, which has been trying to reform the country's inefficient corporations and financial system. Inefficiencies led the world's 13th largest economy to the brink of collapse in 1997.
The deal with Detroit, Mich.,-based GM has been considered crucial to the government's "Sell Korea" campaign. "Sell Korea" calls on the government to sell its stake in troubled companies to foreign investors in an effort to reform its debt-ridden corporate sector.
Daewoo, South Korea's third-largest automaker, with an annual production capacity of almost 2 million vehicles worldwide, has been under court receivership since it collapsed in the midst of the 1997-98 Asian economic crisis with an estimated $17 billion in debt.
Economists here largely welcomed the deal, saying it would help upgrade South Korea's sovereign ratings and ease trade disputes with the United States.
Kim Kwang-du, a Sogang University professor, hailed the deal as "very positive" for the South Korean economy, which is set to achieve a full recovery.
Choi Gong-pil, a researcher at the Korea Institute of Finance, said the sale contract was good news for the South Korean economy, apart from the controversial sale price and terms.
"Foreign takeover was the only option for Daewoo Motor's survival," he said.
But the deal isn't all good news for South Korea, as critics say creditors made too many concessions to the U.S. auto giant.
Daewoo Motor's main lender, state-run Korea Development Bank, accepted GM's demands to reduce the scope of its asset purchase and pay less for Daewoo Motor, backing down from its initial policy of selling all plants and affiliates in a package formula.
Under the final contract, GM would invest $400 million in cash to set up a new auto manufacturing company, tentatively named "GM-Daewoo Motor," in July to take over Daewoo's assets.
South Korean creditor banks will also invest $197 million for a 33 percent stake in the joint venture. The newly formed company will issue creditors $1.2 billion in preferred shares in payment for the assets.
In return, creditors agreed to provide $750 million of new loans to the company at an annual interest rate of 6 percent and additional $1.25 billion set to be linked to a corporate credit rating of BBB estimated at 11.25 percent. In addition, creditors promised to assume Daewoo's potential hidden debts. The Seoul government also allowed GM to delay payment of excise taxes for over four months to help ease liquidity problems.
GM said it would buy Daewoo's two domestic manufacturing plants in Changwon and Gunsan, and one each in Egypt and Vietnam as well as 22 overseas affiliates.
Daewoo's creditors already faced criticism that they failed to include the sale of Daewoo's commercial vehicles operation in the sale list, which contains two domestic and two overseas plants.
Under the final deal, GM agreed to buy Daewoo's main plant in Bupyong, which was excluded from its preliminary acquisition list. But GM said it could take over only after strict conditions are met, such as production level, labor stability, competitiveness and profitability.
Critics say GM's payment of $400 million for the Daewoo takeover is "ridiculously" low, pointing out that Ford Motor had offered $6.9 billion to acquire Daewoo before it pulled out of the deal in September last year.
Industry analysts say GM's entry would lead to a major upheaval in South Korea's auto market. The world's largest automaker, which aims to secure a foothold in South Korea's closed car market, is expected to gear up for an aggressive sales push in the country. GM sold only 285 cars in South Korea last year. The acquisition of Daewoo would also offer GM's production bases in Asia, the fastest growing automobile market in the world.
Analysts agree that GM could lift Daewoo's domestic market share, which plunged to 10.2 percent in the first quarter, to over 20 percent within a year, eating into domestic market share of Hyundai Motor, the country's largest automaker.
"GM-Daewoo Motor could deal a big blow to domestic carmakers led by Hyundai Motor," said Kim Hak-joo, an auto analyst at Hyundai Securities.
A report from KGI Securities says that combined market share by Hyundai and its affiliate Kia Motors, which had risen to 74.6 percent at the end of March, may slip by four to six percentage points in the wake of GM's inroads.
The GM-Daewoo deal could also prompt other big deals, analysts say. Hyundai Motor said it would discuss the possibility of a broader alliance with DaimlerChrysler when the German-American automaker's chief executive visits South Korea early next month.
Hyundai Motor also plans to build its first U.S. assembly plant for $1 billion in Montgomery, Alabama, to make inroads into the American market. Creditors for SsangYong Motor, which is under a workout program, are also courting foreign investors.
