Reviving Asia’s third largest economy by restructuring troubled companies is crucial to Government reform efforts, as the country heads toward December’s presidential election. But Korea’s campaign hit a stumbling block recently as key asset sales deals faltered.
General Motors Corp’s proposed acquisition of Daewoo Motor Co is facing hurdles over potential debts at overseas units, Finance Minister Jin Nyum said, delivering a second blow within a week to the Government’s push to dispose of troubled firms.
"Potential liabilities are obstacles to selling Daewoo Motor," Mr Jin said.
GM signed a memorandum of understanding with Daewoo’s creditors last September after more than a year of talks.
Analysts view the sale of Korea’s third-largest auto-maker in sales terms as a litmus test of the Government’s willingness to restructure its debt-laden industries.
South Korea has already suffered a serious setback in such efforts.
Last week, US insurer American International Group walked away from a $1.5-billion deal as part of a US Consortium to take control of Hyundai Group Financial units, as concern lingered about hidden liabilities.
But barring any nasty surprises, analysts said the amount of effort put into taking the GM-Daewoo deal this far weighed in favour of a successful sale, although a speedy conclusion was still not guaranteed.
"This is probably the closest we’ve come to a deal. GM’s not paying a lot and the company is basically being broken up into good and bad assets," said Mark Barclay, an auto analyst at Samsung Securities.
The Government also called off the sale of ailing Regent Insurance Co as it failed to find a buyer, while troubled Hynix Semiconductor Inc is still in talks with US Micron Technology Inc to sell its entire memory chip business.
But progress has been slow due to pricing differences and hefty debt levels at the world’s third largest computer memory chip-maker. Hynix owes 8.64 trillion won ($6.59 billion) to commercial banks. Despite concerns that further delays may hurt investor confidence, Mr Jin hinted the Government would not be in a hurry, because policy-makers were loath to sell assets at prices below what they considered fair value.
"The situation has changed a lot from the time of financial crisis in 1997-1998, when the Government and companies were so anxious that they were willing to sell anything to raise fresh funds," said YC Mok, an analyst at ING Barings in Seoul.
"The major hurdle now is that the valuation gap has widened because of Korea’s recovery hopes and rising stocks," Mr Mok said. "The urgency is not here any more," he said.
Analysts said what is more important now is whether local companies have prepared strategies to build a competitive edge beyond simple shedding assets. — Reuters