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Title Korea Business & Finance[Culture]
Name Standardmold
Date Time/Hit 2007-01-30 20:15:00 / 1134

Troubled big-name businesses regain vitality through rigid

By Kim Eun-jeong

debt-rescheduling programs

Over the last decade following the nation's financial crisis, major changes have swept the nation. The common belief that large businesses cannot collapse is no longer valid. In the market, M&As are taking place one after another. Right after the financial crisis, a multitude of people started their venture businesses with the dream of becoming millionaires. Many of them, who lacked competitive business plans, simply disappeared from the scene. Many businesses are stressing the importance of shareholder-centered management, as business hunters set their sight on those with weak governance structure. The market's appraisal of businesses' management results is being reflected in stock prices. In such a process, the capital market has emerged as the primary source of funds supplying businesses, pushing aside bank loans. Money market funds have realized enormous power so much so that the term "fund-influenced capitalism" has been coined.

Businesses are stressing the importance of risk management in contrast to the past when they were willing to run risks with the belief that the government and their group would come to their rescue. The lack of their willingness for adventurous investment has considerably weakened the drive for growth. The ever-fiercer "winner-takes-all" competition has led to bipolarization in each sector. The number of the rich and the poor, including the homeless, has increased, whereas the number of those who regard themselves as middle class has decreased. The number of unemployed youths has increased. The gap between home prices in Seoul and those in provinces has widened to an uncontrollable extent.

This series of articles intends to look at how local businesses have fared over the past decade following the nation's financial crisis with the hope that it will set a milestone for a new jump forward. - Ed.

"I cried very much on a day in February 2001 when my husband received a pink slip from his company. We moved to another city as we couldn't live in the same place at the thought that Daewoo Motor was not his company any longer.

"Still, TV news on the company reminded us of the happy days when my husband was a Daewoo Motor employee. Eventually, my husband was reinstated at GM Daewoo. I thank the management of the company for re-accepting him as an employee." These are comments by the wife of a GM Daewoo employee.

May 2, 2006 was a significant day for a total of 1,605 employees (out of the 1,725 laid off) who returned to their former workplace under the new name GM Daewoo, after a five year absence.

Many of them said, "How nice to smell car oil again!"

The reemergence of former Daewoo affiliates

GM Daewoo's reinstatement of former Daewoo Motor employees signaled the reemergence of former Daewoo affiliates. In April 2002, General Motors took over Daewoo Motor, which was going through a debt workout process following the dismantling of Daewoo Group in August 1998. In the fourth year, GM Daewoo succeeded in turning around to post a profit on the back of brisk exports using GM's global network. The company posted a loss for three consecutive years, including a net loss of 130.6 billion won in the first year.

In October 2006, GM Daewoo was designated as a platform develop center for small-sized cars. Nick Riley, the first president of GM Daewoo, who led the reinstatement of former Daewoo Motor employees, was promoted to president of General Motors Asia-Pacific.

Daewoo International, which was said to be the very cause of the collapse of the Daewoo Group, has also succeeded in reemerging. Its debt-to-income ratio, which stood at staggering 940 percent at the time of its spin-off from the Daewoo Group, has dropped to about 100 percent.

It had also posted a profit for four consecutive years until 2005. At present, it is looking for a new owner, offering more advantageous conditions, such as a resource development business that is a new growth engine and the enhanced value of its equity stake in Kyobo Life Insurance - where it controls 24 percent of outstanding shares.

Daewoo Shipping & Marine Engineering is a first-rate shipbuilder, which aims to attain 15 trillion won in annual sales and a 10 percent operating profit ratio by 2011. It successfully emerged from a debt workout program in August 2001 through intensive restructuring efforts, including a debt-to-equity swap, a disposal of non-essential assets, and peaceful collective bargaining pacts.

In 2001, it posted the highest profit in the industry. In April 2002, it obtained an "A" level credit rating for its corporate bonds, higher than the level for competitors, such as HHI's "A-."

Construction businesses

At the time of the nation's financial crisis, the high interest rate and the sharp drop in real estate prices dealt a fatal blow to the local construction businesses whose debt ratio remained high. Even the affiliates of conglomerates were thrust into a serious liquidity crisis. Many of them eventually succeeded in restoring normal operations through the painstaking restructuring process and are looking for new owners. Several former affiliates of conglomerates are emerging as popular targets of M&As, whose results may have an impact on the nation's entire industrial map.

The Kumho-Asiana Group took over the Daewoo Group. Hyundai Engineering & Construction is looking for a new owner. It emerged from a debt workout process, which started in 2001, in May 2005 on the strength of support from affiliates, such as Hyundai Asan, Hyundai Merchant Marine and Hyundai Logistics, and the Chung founding family.

Ssangyong Engineering & Construction completed a workout process, which started in March 1999, through intensive restructuring, including reducing its corporate size by more than half. It successfully carried out the sale of the 1,391-household multi-purpose apartment complex Morning at Gyeonghi Palace in 2001. In 2003, it turned around to post 55.7 billion won in operating profits. Early last year, it succeeded in winning four out of the five sectors of the North-South Corridor highway project in India, regaining past glory of a first-rate construction business.

Other survivors of the crisis

A lot of businesses, large and small, have been reborn as key players in the era of globalization, after experiencing difficulties in a time of the national economic crisis. SK Networks (previously SK Global) was the one firm that brought SK Group into the spotlight in a large-scale window-dressing case in March 2003 following the financial crisis.

The company has succeeded in normalizing its operations after a commencement of the workout process in September 2003 on condition of suspended liquidation. In 2005, it posted operating profits of 355.9 billion won, achieving a higher result than the annual target promised to the creditors for three years in a row. It is now the envy of other businesses with its solid business structure comprised of general trading, information/communication and energy sectors.

Korea Express is another example of a business that has successfully overcome crisis. It has transformed itself into a solid business that big-name companies, such as Kumho, STX and Goldman Sachs, vie with each other to obtain its equity. It had been put into court receivership due to the payment guarantee provided to Dong Ah Construction, the then parent company at the time of the financial crisis.

By the end of 2005, it reemerged posting 47.7 billion won in net profit, compared to a loss of 88.9 billion won in 1999, as a result of painstaking efforts to regain competitiveness. Its president, Kwak Yeong-wook, even offered his private property as collateral to get bank loans.

(ejkim@heraldm.com)



2007.01.30

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