soon-to-be-unveiled debt restructuring plan.
Bankers close to the deal, which is to be announced this week, say it is likely to favor Korean creditors of Daewoo. Those bankers say Daewoo's financial advisers have been quietly approaching U.S. investors to preempt some of the criticism that is expected when the announcement comes.
Daewoo, which reported net income of $103 million in 1998, owes about $50 billion under its existing financing, which includes loans and bonds.
Though Daewoo's loans from foreign banks are estimated at only $9 billion, many of them are due to mature in coming months, and the company is hoping to persuade investors to extend those loans in exchange for stronger guarantees of collateral and support from the South Korean government.
U.S. bankers said there appear to be no guarantees in the plan that loans would be repaid. Daewoo representatives have hinted that foreign banks would receive interest payments "when and if" funds would become available.
"People have been feeling fed up," said a source at a major U.S. lender negotiating with Daewoo. "There's been a lot of dissention. We want to keep (Daewoo) as a going concern, even if it has to be broken up. But there can't be two classes of creditors."
In the U.S. syndication market, Daewoo has tapped lenders for $460 million through six loan packages since 1995, according to Thomson Financial Securities Data Co.
Daewoo's most recent loan was a $130 million credit facility syndicated by the Bank of New York in March. Lenders include ABN Amro and Credit Suisse First Boston. Other longtime lenders include Citigroup Inc. and Chase Manhattan Corp., which are part of a five-member foreign banking committee negotiating with Daewoo.
Lenders apparently became more cautious about financing Daewoo during the last four years. Daewoo's overall debt servicing costs jumped 70% from 1995 to 1998, to $2.02 billion, according to company reports. U.S. banking companies, meanwhile, took away the company's investment-grade interest rates, raising spreads 350% on new loans to the company. By 1998 they considered Daewoo a highly leveraged borrower.
Though U.S. bankers are skeptical that Daewoo's foreign creditors will approve the restructuring plan, they have stopped short of an all-out fight against it. The stand-back strategy by the Americans contrasts with the actions of at least two European banking companies, Bank Brussels Lambert and Natexis Banques Poplaires, which have filed lawsuits against the company in an attempt to seize assets.
As Daewoo supports Korean lenders, the favor is clearly being returned. Local creditors agreed Sept. 7 to provide more than $900 million in additional loans. However, those lenders, led by Korea Development Bank, have effectively taken control of Daewoo through debt negotiations, which began in July.
South Korean banks also have not agreed to finance one of Daewoo's biggest and most cash-strapped subsidiaries, Ssangyong Motor Co., though that company is expected to fall under the control of creditors including Chohung Bank.