Foreign creditors have rejected a proposal from the disintegrating Daewoo Group asking them to write off up to 82 percent of their loans, as the possibility of court action looms larger, bankers said yesterday.
The rejection of Daewoo's proposal increases the likelihood foreign creditors may eventually resort to the courts to get their money, banking analysts said.
Under the spurned proposal by Daewoo's lawyers and financial advisers, a company would be set up to buy Daewoo's foreign debt at ratios ranging between US$0.18 and US$0.65 per dollar.
But a foreign banker on the steering committee that is talking with Daewoo's local creditors and the government on behalf of the group's more than 200 foreign creditors, said the latest proposal is based on murky bookkeeping.
"We don't know the basis for these percentages," he said.
Daewoo's foreign creditors are owed some US$6.7 billion in mostly unsecured loans and bonds, and the latest developments may increase their impatience.
Daewoo's advisers said in a letter addressed to foreign creditors on yesterday that significant adjustments were made in the proposal to account for certain factors that had not yet been incorporated in the preliminary domestic workout plans.
They said the principal adjustments included taking into account the realizable value of intercompany receivables and equity investments, adjusting for the impact of guarantees of subsidiary debts.
The adjustments also added in certain off-balance sheet liabilities, including the impact of the bank accounts maintained by Daewoo Corp, which was found to have funnelled some US$7.5 billion to Daewoo's overseas subsidiaries via a "secretive financial center" in London, the advisers said.
"As a result of various extraordinary adjustments, foreign creditors will be guaranteed enhanced recovery values," the letter said.
Daewoo and its foreign creditors are skirmishing over Daewoo Corp, flagship of the conglomerate. Foreign bankers mostly lent to Daewoo Corp, believing it fronted for the group.
The group's trading and construction arm, Daewoo Corp has 31.99 trillion won (US$28 billion) in debts versus 17.46 trillion in assets and is by far the most indebted of the Daewoo units.
One foreign banker familiar with the debt buyout proposal said the 18 percent loan recovery rate applied to Daewoo Corp.
Foreign creditors in a letter sent to the government this week expressed dismay after Daewoo's financial advisers briefed them about a hitherto unknown "British Financial Center" and its connection with Daewoo Corp.
At least 17 foreign banks have already begun legal steps to collect debts at Daewoo's overseas subsidiaries.
One foreign banker said those with larger exposure to Daewoo debt and businesses to nurture in South Korea may also drop their reluctance to take legal action, if they think the courts could offer a fairer and more transparent solution to the problem.
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