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Daewoo still faces hurdles after foreign debt plan

SEOUL: A debt buyout agreement between foreign creditors and South Korea's Daewoo Group is likely to be welcomed by financial markets, but analysts said many big obstacles remain in dismembering the troubled group.

Leading foreign creditors agreed on Saturday to take cash from South Korean creditors amounting to around 40 percent of the debt owed to them by four Daewoo affiliates.

"The debt plan agreement will surely help clear up uncertainty in financial markets", said Jwa Seung-hee, president of the Korea Economic Research Institute.

The plan to purchase loans for cash would apply to $4.84 billion in non-secured loans out of Daewoo's total foreign debts of $6.7 billion, South Korea's Corporate Restructuring Coordination Committee (CRCC) said.

But analysts warned against too much euphoria and said the agreement reached in Hong Kong had eliminated only one of many bottlenecks to Daewoo's mammoth problems.

"The delay of negotiations with foreign banks has allowed us to leave Daewoo problems uncared for," said an analyst at Dongwon Securities.

"But with the settlement of the deal, we have to visit the issue again, maybe the most bitter part (of the problem) this time."

The Daewoo Group has combined liabilities of 89 trillion won ($78.9 billion) against assets of 58.7 trillion won.

DEBT-SHARING AMONG LOCAL CREDITORS TRICKY ISSUE

Daewoo is being dismantled by creditors who took control of the conglomerate last August after injecting emergency funds.

Following a due diligence study last November, local creditors hammered out debt workout programmes for Daewoo, which they hoped would help revive individual companies.

But analysts warned debt rescheduling plans, if carried out as agreed with banks, could prove hard to bare for creditors such as investment trust companies heavily exposed to Daewoo.

"It is not clear that local creditors, who were prodded by the government to accept debt-shouldering scheme, can cooperate to the end," said the analyst of Dongwon Securities.

SOLUTION COULD BE DELAYED BY POLITICS

Some analysts also warned that President Kim Dae-jung's ruling party might not want to get to grips with the Daewoo issue ahead of general elections scheduled for April in case of more bad news.

"The government would be tempted to keep the lid on the Daewoo issue at least until the parliamentary elections," said Kim Min-tae, analyst at LG Economic Research Institute.

And further delays in settling Daewoo's problems could make things worse as the future value of struggling Daewoo firms could drop further, analysts said.

A network of subcontractors and parts suppliers of Daewoo companies had also been seriously damaged since Daewoo's debt problem flared up last July, when the government declared Daewoo could sink unless emergency loans were granted.-Reuters