SEOUL — South Korea's financial regulator said today that Daewoo Group and foreign creditors have reached a debt restructuring agreement.
Daewoo Group's local creditors agreed to buy the company's debt to foreign banks in a move aimed at saving the South Korean conglomerate from bankruptcy.
"Foreign creditors agreed to accept 39% to 40% of collection rate of their debts to four Daewoo affiliates," said a spokeswoman at the Financial Supervisory Commission.
According to the terms of the agreement, local banks will buy $4.84 billion of the debts owed by the largest four companies in the Group--Daewoo Corp., Daewoo Electronics Co., Daewoo Heavy Industries Co. and Daewoo Motor Co.--and their overseas affiliates.
A settlement with creditors would clear the way for the disposition of Daewoo, including Daewoo Motor, Korea's No. 2 auto maker, which has attracted three bidders: Ford Motor Co., General Motors Corp. and Hyundai.
A joint news statement by the Korean Corporate Restructuring Committee and the Steering Committee of Foreign Lenders of Daewoo Group of Companies said a nonbinding agreement in principle was reached under which Korean banks will offer to purchase Daewoo debts for cash.
Daewoo once accounted for about 10% of South Korea's economy. Local creditors needed the foreign debt problem solved before they could proceed with the sale of assets and save Daewoo.
The group, which last July said it was unable to keep up repayments on its more than $70 billion debt, owes $6.7 billion to overseas banks.
Korea's government and local creditors are hoping to avoid the collapse of Daewoo's key units, including the auto maker and the second-largest shipyard, so they can be sold to recover their assets to pay off loans.