Creditor banks of South Korea's Daewoo Motor Co. risk heavy losses after Ford Motor Co. pulled out from a 6.9 billion dollar deal to acquire the troubled automaker, a securities house said here Saturday.
In a report titled "The Aftermath of Ford's Withdrawal," LG Investment Securities Co. noted the prices for Daewoo Motor offered by other bidders were much lower than Ford's.
Ford reportedly offered 6.9 billion dollars for the country's second largest automaker in an auction in June.
The General Motors-Fiat consortium made a five-billion-dollar (5.5 trillion won) bid in June, but future offered prices were expected to be lower than the consortium's, the report said.
The scale of Daewoo Motor's debts has been growing as hidden debts have come to light and LG Securities said the company's borrowings from financial institutions amounted to 13.8 trillion won (12.3 billion dollars), including four trillion won from South Korean banks.
Its assets were estimated at 12.9 trillion won (11.2 billion dollars).
These banks have already set aside 1.6 trillion won of provisions to cover losses on loans to Daewoo Motor, expecting that some 40 percent of their four trillion won in loans to the automaker would be unretrievable.
If Daewoo Motor had been sold to Ford for 6.9 billion dollars, the banks would have had to burden an additional three-percentage loss on their loans to Daewoo Motor, the report said.
Following Ford's pullout, however, the selling price is expected to fall below five billion dollars. In this scenario, the banks would have to shoulder an additional 800 billion won (714 million dollars) of losses, it said.
Most of the bank loans to Daewoo Motor were extended by the banks which have had to be injected with public funds to pull them from the verge of insolvencies.
They include Korea Development Bank, Hanvit Bank, Cho Hung Bank, Korea Exchange Bank, Korea First Bank and Seoulbank.
"Ford's pullout will lead to further delays in dealing with Daewoo Motor, resulting in the injection of more public funds," Lee Joon-Jae, an LG Securities analyst, told journalists.
"It would cause foreigners to reduce their investment in the stock
market and South Korea's credit rating could be affected," he said -- SEOUL(AFP)
© 2000 Al Bawaba (www.albawaba.com)
