Daewoo Motor faces bankruptcy
Receivership could delay sale to GM
SEOUL, South Korea — South Korea's Daewoo Motor Co., teetering on the edge of bankruptcy, got a one-day reprieve Tuesday as did creditors trying to negotiate the sale of the ailing car maker to General Motors Corp.
Creditors said if Daewoo goes bankrupt, it is expected to be put under court receivership — a procedure that will install new management and freeze all debts. Daewoo's 250 main subcontractors could collapse in a chain reaction. And the possible selloff of Daewoo Motor to General Motors would likely be delayed.
Daewoo, which has been running on emergency bank funds, defaulted on nearly $40 million in debt on Monday. In South Korea, a company goes bankrupt if it fails to honor its commercial papers for two straight days.
Daewoo, a former symbol of the nation's economic expansion, has been on a debt-workout program since July 1999.
Last week, creditors stopped sending new funds to Daewoo, demanding that its union accept the dismissal of 18 percent of its 18,000 workers, in a bid to reduce costs. The union said Tuesday afternoon that it would not accept job cuts, although more negotiations were planned.
Korea Development Bank, Daewoo's main creditor, gave Daewoo and its union until Wednesday morning to reach an agreement and avoid bankruptcy.
Without funds from creditor banks, the company cannot survive even a day, said Lee Sung-sang, a Daewoo business director.
Lee said the company has $155 million in debt due this week but can't pay it.
The sale could be delayed because of the time-consuming receivership process and the likelihood that General Motors would lower its offer to Daewoo creditors, said Sohn Jong-won, an auto analyst at Good Morning Securities Ltd.
But some auto analysts said court receivership may help overhaul the inefficient car maker ahead of the buyout. General Motors has been negotiating to buy the firm since September.
Court receivership would make it easier to restructure the company and win back confidence from the market. Thus, it will be easier to sell Daewoo to GM, said Suh Sung-moon of ING Baring Securities Ltd.
South Korea's two other once-troubled car firms — Kia Motors Corp. and Samsung Motors Inc. — were sold to Hyundai Motor Co. and Renault SA of France, respectively, after being put under court receivership.
GM spokesman John Mueller said Tuesday the company was still researching Daewoo and declined to comment on its new troubles.
GM entered the race to acquire Daewoo after Ford Motor Co. abruptly withdrew from negotiations in September. In hotly contested bidding early this year, GM reportedly offered between $4 billion and $5 billion.
Although heavily indebted, Daewoo could provide an easy way for foreign auto giants to crack open South Korea's car market and serve as a stepping stone into nearby China, one of the fastest-growing car markets in Asia.
Daewoo has the capacity to make 2 million vehicles a year at home and abroad.
The Daewoo crisis, as well as turmoil at cash-strapped Hyundai Engineering and Construction Co., the nation's biggest builder, have strained government efforts to restore investor confidence in the economy.
Hyundai Engineering barely escaped bankruptcy last week.