The chaebol, having already invested close to Rs 4,000 crore in the Indian auto venture, is not keen to chip in with more funds at this juncture given its international commitments. Hence, it may consider roping in an equity partner to fund the second phase of expansion.

"There is absolutely no need for the Daewoo group to hold more than 51 per cent in DMIL. We are looking at ways to bring down the stake of the promoters," a top DMIL official told The Financial Express. The automobile company has already initiated talks with local financial institutions to participate in the equity, failing which, sources say, it might rope in a strategic partner through a private placement of shares.

The shareholding of the Daewoo groupin DMIL, which has so far been held through holding company Daewoo Corp, has recently been transferred to the automobile flagship Daewoo Motor Company. Besides the promoters, the other stakeholders in DMIL include erstwhile partners DCM (0.689 per cent), Toyota Motor Company (0.019 per cent) and the financial institutions (7.66 per cent). "The financial institutions feel that the automobile industry is struggling at this point and are reluctant to participate in the equity of DMIL.

We are now exploring other options as well," the official added. The company, it is learnt, is also in talks with leading automobile makers to participate in equity, although company officials are tightlipped about whether General Motors, which till recently was a stakeholder in Daewoo Motor Corporation, would join as co-promoter.

DMIL chairman KH Nam, however, said that time was not yet right to bring in an equity partner as fund infusion into the company will not be to the desired level. "We will open the company to financialinvestors after it starts making handsome profits," Nam said. DMIL, which commenced operations four years back, did not have the smoothest of rides, given the prevailing recessionary conditions. The company says that it would break even by 2001, although officials admit that the target will be "very difficult" to achieve. In a bid to achieve the targets, DMIL plans to undertake a major expansion programme and come out with new models to woo the Indian customer.

The company, which will roll out 40,000 units of its "big small car" Matiz in the current fiscal, plans to increase its capacity to effectively cater to the export markets as well. The company has also been exploring the possibility of launching a luxury mid-size car in India, which could be chosen from DMC's successful models Nubira or Leganza.

Company officials declined to divulge the proposed investment in the second phase of expansion.

With the auto industry being highly capital-intensive, DMIL has not been left with much option but to raisefunds through a private placement of equity. "The industry has to look for strategic alliances in India. Or else it might become difficult for several auto companies to stay afloat," DMIL officials said.

Insight

A good move

Daewoo is in trouble back home in Korea, which makes it difficult for it to put in further investments in its Indian venture. A bailout package has been worked out by the chaebol's creditors, but many analysts are of the opinion that that will only give Daewoo breathing space to restructure, which could include selling off some of its overseas businesses. In the circumstances, it would make sense for the Indian venture to raise capital by a preferential allotment to a strategic investor, particularly since the company is gaining market share. The increase in equity will affect the stock price in the short run, but would be a good long-term strategy.

Manas Chakravarty