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Some U.S. Companies See Fire Sale in South Korean Crisis

Asia: Regulatory barriers are likely to come down along with prices, drawing foreign interest in newly distressed banks, auto makers and other groups.


SEOUL — The troubles facing South Korea's giant conglomerates are proving to be good news for U.S. and other foreign firms. Suddenly they see opportunities to buy modern, Korean-built production facilities around the world, or to find a backdoor into a market that seems destined to eventually regain its robust growth.

"For Sale" signs have gone up at steel plants, beverage-manufacturing facilities and giant office towers around the world.

Samsung Group, the country's largest chaebol--the term for South Korea's most influential conglomerates--announced last week that it would sell $300 million worth of real estate in London, New York and Singapore, not to mention $80 million worth of property owned personally by Chairman Lee Hun Kee, to reduce its debts.

Meanwhile, everything from banks to makers of consumer products, automobiles and petrochemicals in South Korea are attracting attention from foreign shoppers.

Companies such as Procter & Gamble have already expanded their market in Korea by gobbling up competitors being shed by conglomerates under pressure to clean up their balance sheets and reduce their debts.

General Motors is openly coveting opportunities in South Korea's troubled auto industry. And U.S. banking giants are said to be eyeing two of the country's biggest banks.

This is expected to accelerate after President-elect Kim Dae Jung warned Korea's most powerful tycoons last week that their restructuring plans must include the sale of businesses that are profitable as well as those that are money losers.

The chaebols, which embarked on an aggressive, debt-financed expansion program in the 1980s and '90s, are widely blamed for pushing South Korea to the edge of bankruptcy. Eight of the nation's 30 largest conglomerates have declared bankruptcy in the last year, although some are still operating under court protection.

"The Korean firms need mergers and acquisitions and joint ventures," said Park Jin Hei, vice president and treasurer of Citibank's operations here. "Their problems can only be solved by equity, not more debt."

But many foreign investors are holding back until they are sure the Korean government follows through on its pledge to clean up the banking system, reduce the legal barriers to foreign ownership and reform labor laws to make it easier to lay off employees during difficult times.

The government has promised that by the end of this year, it will lift restrictions on foreign investment in the stock market--allowing foreigners to assume majority ownership in key industries, notably banking, and paving the way for hostile takeovers.

"Foreign investors coming in and looking at this market are considering it on the basis that these changes will go forward," said Jay Bonacci, an accountant working on six deals involving European and U.S. firms. "If that doesn't occur, I'm not optimistic at all that these things will happen."

South Korea's fiscal crisis, triggered by mountains of private debt, has forced people to confront their fears of foreign influence in the economy. During a televised town hall meeting last Sunday, President-elect Kim told viewers that fears of becoming an "economic colony" were nonsense.

He said Korea's recovery depends on its integration into the global economy and that foreign investors will inject badly needed capital into the credit-squeezed system and create jobs for those laid off by bankrupt or restructured firms.

So the welcome mat is officially out--but don't trip. Assessing a South Korean company's profitability and debt load can be difficult, since many corporate subsidiaries have substantial cross- holdings of shares, cross-guarantees of loans and intracompany sales that muddy their profit pictures and increase their debt exposure.

Unraveling the paper trail will be particularly challenging in the financial sector, where two troubled banks--Seoul Bank and Korea First Bank--are expected to go on the auction block in late February. Chase Manhattan bank and Citicorp have been named as possible buyers, although bank officials deny being interested.

Park said Citibank, a unit of Citicorp, has its hands full managing its own operations here, since tight credit and skyrocketing interest rates have already toppled thousands of local companies and are rapidly turning good debt into bad.

Consumer products is one arena with many potential buyers and sellers, according to local business executives.

For years, foreign firms have looked hungrily at Korea's large middle class, but it has been a difficult market to break into, in part because of consumer resistance to imported products as well as high tariffs and bureaucratic red tape.

Procter & Gamble, the U.S. consumer products giant, recently paid approximately $240 million for a majority share of Ssangyong Paper Co., a subsidiary of debt-strapped Ssangyong Group.

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