Domestic Creditor Banks Ready to Take Over $2 Billion of Daewoo's Debts

Strategic Insights -

South Korea's domestic creditor banks are poised to take over a maximum $2 billion worth of the $5 billion debt that ailing conglomerate Daewoo Group owes to over 200 foreign banks and financial institutions. This decision comes after the government determined that domestic banks have the necessary funds to purchase Daewoo's foreign debts next month, should foreign creditors continue to reject participation in Daewoo's debt workout program.

Key Takeaways:

  • Domestic creditor banks are prepared to take over a maximum $2 billion worth of Daewoo's debts, with a recovery ratio of debts by each of Daewoo's affiliates determining the figure.
  • The government has insisted on a 70% loss ratio for foreign creditors, while they have maintained a 50% level, indicating a potential midway 60% loss rate.
  • Domestic banks will put up $1.5 billion in provisions, KAMCO will buy financial institutions' nonperforming loans (NPLs) worth $500 million, and public enterprises will repay $1 billion in debts.
  • The Korea Asset Management Corp. (KAMCO) will buy out Daewoo's debts from domestic creditor banks, which have taken over the foreign portion of Daewoo's debts.
  • The government expects a balance of inflow and outflow of dollars in December, as the $5 billion forex demand from domestic banks may countermand the inflow of foreign investment in stock markets.
  • The won/dollar exchange rate has strengthened to 1,150 won to the dollar during midday trading, the highest since December 4, 1997.

Statistics:

  • $2 billion: the maximum amount domestic creditor banks are prepared to take over of Daewoo's debts
  • $5 billion: the total debt Daewoo Group owes to over 200 foreign banks and financial institutions
  • 70%: the government-insisted loss ratio for foreign creditors
  • 50%: the loss level maintained by foreign creditors
  • 60%: the potential midway loss rate
  • $1.5 billion: the provisions domestic banks will put up
  • $500 million: the amount KAMCO will spend on buying NPLs
  • $1 billion: the amount public enterprises will repay in debts
  • December: the month when the government expects a balance of inflow and outflow of dollars

Sources:

  • Kim Yong-duk, director general of the Ministry of Finance and Economy's international finance bureau
  • The Korea Times
  • The Chosun Ilbo
  • The Ministry of Finance and Economy's official statement
  • Various reports