Financial sector bounces back
Korea moves between extremes. Only 18 months ago Lim Chang-yuel was finance minister of a country on the verge of collapse. Lim steered Korea through its liquidity crisis and was instrumental in launching the republic's $4 billion bond issue. His tireless efforts to save Korea from bankruptcy won him the respect of the international community.
Lim became a national hero and went on to use his popularity to become elected as governor of Kyonggi province. Then last month, in a dramatic reversal of fortune, Lim and his wife Joo Hye-ran were arrested for allegedly taking a W500 million ($416,000) bribe. It was said that the former finance minister had been given the money by Suh E-suk, the former president of Kyungki Bank, who reportedly was trying to prevent the forced closure of his bank. Suh was charged with taking W368 million in return for extending illegal loans of W169 billion to nine ailing companies. All in all, the scandal has led to the arrest of 19 former bank officials.
Workaholic and perfectionist
Kim Woo-choong is another to be dis-comfited but not for alleged wrong-doing. He has been described as the "workaholic and perfectionist chairman of Daewoo" but his business legacy has been reduced to tatters. As became clear at a chaotic press conference on August 19 at which Chung Ju-ho, Korea's restructuring chief and Jang Byung-joo, president of Daewoo Corporation, faced a barrage of questions from a scrum of journalists and cameramen, Daewoo's huge debt problems mean the conglomerate is to be restructured and sold off bit by bit. Kim, one of Korea's business patriarchs, will be left with a stake in his car company. All other subsidiaries will be sold off in a bid to reduce the debt-equity ratio to 196% from 527%.
For the proud boss and founder of what was Korea's second-biggest chaebol this is a disaster. He loves the car business but he also loves the others and may never get used to the idea of being overlord to just one. Each morning he will wake up and see the three other big chaebols largely intact. Daewoo, for so long a symbol of the strength and the might of the new Korea, is now being vilified.
A spokesperson for the Financial Super-visory Commission, Kim Young-jae, comments: "We are considering changing the names of the separated companies to disassociate them from Daewoo, which has become a synonym for feeble. This can be seen as the Daewoo Group being completely dismantled."
Daewoo, meaning "great universe", was founded by Kim in 1967 after a trip to Hong Kong and the- then South Vietnam where he bought fabrics. In Singapore he told buyers that they were Korean materials, picked up $300,000 in orders and returned to Korea to have the fabrics copied and delivered. By his fourth year of business Kim Woo- choong had exported textiles worth $4 million.
Kim devoted all his energies to Daewoo. It wasn't long before he was building ships and cars. He worked 20-hour days and took his first full day off only after his son died in a car accident in 1990.
The chaebol grew into Korea's second largest. It controlled 396 subsidiaries with 152,000 employees. Unfortunately, its growth was financed through excessive borrowings.
At the end of 1997, Daewoo's total debt stood at W42.8 trillion - W100 billion less than that of the LG Group. A year later Daewoo's debt had swelled to W57 trillion as it sought to expand, acquire and generally achieve its slogan of "$50 billion in exports".
By July this year that W57 trillion of debt and its annual interest expense of W5.9 trillion had left the group exposed, and, as with Korea only 18 months earlier, on the verge of collapse.
In the meantime, there was an abortive attempt to swap Daewoo Electronics for Samsung's car business. The asset swap failed but in a revealing insight into Daewoo's business philosophy, at the end of July it was still expressing an interest in purchasing Samsung Motor's assets despite its own problems the week before with the rollover of W7.4 trillion of its own debt.
In the ensuing débâcle, Kim pledged W10 trillion of his personal assets as collateral and bought some breathing space. But it was too little too late.
A former favourite of the presidential Blue House - especially for his company's willingness to do national service - Kim was not exactly in the favour of the present incumbent, Kim Dae-jung. The president had been trying to encourage all the chaebols to focus on core assets and reduce their debt-equity ratios to 200% by the year-end. Kim Woo- choong stood out as the least cooperative.
Ironically, a former Daewoo board director, Lee Hun-jai, was running the Financial Supervisory Commission. However, this hardly engendered favouritism, as Lee quickly demonstrated when he became the instrument of Daewoo's forced break-up.
Forced sales
The government and the FSC stepped in at the end of July and announced plans for the dismantling of Daewoo. The once-great company is to be stripped of its shipbuilding unit, its trading company and every other affiliate apart from its car business. In the latter, a major chunk of equity is to be sold to General Motors. The businesses must be sold by the year-end and if Daewoo tries to avoid the directive then forced sales will be pushed through.
The first to go may be Daewoo Electronics, which has signed a memorandum to sell its assets to California-based Walid Alomar & Associates for $3.2 billion. If all goes well, the sales will reduce Daewoo's (the remaining car company) debt to W33 trillion.
Daewoo will also immediately have to sell its securities arm, the most profitable in Korea and also the most profitable unit in the group. This is a major blow from a funding perspective and, if anything, will ensure that Daewoo will have to break itself up.
Daewoo Securities controls 24.5% of Seoul Investment Trust, which manages some W14.6 trillion of Korean assets, second only to Hyundai Investment Trust.