The giants are unloading assets to raise cash in a hurry

Their global expansion seemed unstoppable. At home, South Korea’s giant conglomerates, or chaebol, became exporters feared by rivals the world over. Overseas, they pushed through Central Asia into Europe, the U.S., Latin America, Australia, even Africa. They spent billions on new plants to crank out semiconductors, VCRs.and cars. Then the crisis hit. Korean companies, burdened with $600 billion of debt, got slammed as interest rates jumped to 20% and the value of the currency tumbled.

Now, the biggest chaebol - Hyundai, Samsung, LG, and Daewoo – are being forced to scale back their empires. In recent dramatic declarations, the chaebol say they will focus on core businesses, and sell off billions in assets to raise cash. Samsung, for a example, said on May 6 it would seek $5 billion by offering assets, sideline businesses, and equity for sale to foreigners. It may sell out its stakes in two joint ventures to its partners in those ventures, General Electric Co. and Hewlett-Packard Co. Samsung hopes to raise another $8 billion from sale of shares and assets to Koreans and halve its core business units from 10 to 5.

If the chaebol follow through on these plans, then the restructuring of Korea Inc. may finally be under way. What is clear is that the chabol are beating a retreat from their overseas expansions. They are unloading plants worldwide while putting many of their more ambitious investment plans on ice. Daewoo Group Chairman Kim Woo Choong, one of Korea’s most headstrong expansionists and leader of the business lobby group the Federation of Korean Industries, says the country’s top 30 chaebol are talking to foreign investors about as many as 200 deals. Talks that began in February and March should be concluded by next month. “Major agreements will be shaping up from June on,” declares Kim.

LOGIC LAPSE. Daewoo is leveraged to the hilt from its quest to widen its automobile business in developing countries. It spent a total of $1.3 billion overseas for its auto business alone. Now, it’s offering up to 50% ownership in factories in Eastern Europe and the former Soviet Union to General Motors Corp.. In addition, Daewoo, which assumed $1.1 billion in new debt to absorb Ssangyong Motor Co. in January, has agreed to sell half of a $1.3 billion power plant in India to ABB Asea Brown Bovery Ltd.

There’s movement in the chipmaking industry as well. At Hyundai Group, the electronics unit has sold off its Colorado semiconductor subsidiary, Symbios Logic Inc. to Silicon Valley’s Adaptec Inc. for $775 million and the assumption of $100 million in debt. The proceeds from the sale of the maker of specialty chips will help finance Hyundai Electronics Industries Co.’s new $1.3 billion memory chip plant in Oregon. The sale is a blow to company ambitions, says Wang Yunjong, research fellow at the Korea Institute for International Economic Policy, a think tank. “Symbios represented the company’s move to the more profitable logic chip business.” Hyundai says it will develop capacity in logic chips at home.

Big changes are coming at Samsung Group’s flagship, Samsung Electronics Co. It sold a 10% stake in its chip plant in Texas to Intel Corp. last year for an undisclosed sum. Now, it’s negotiating to sell Intel an even bigger stake. Samsung has halted a planned $55 million expansion of the Texas plants, as well as construction of a $600 million plant in Newcastle, Britain, for making fax machines and personal computers. In telecommunications, Daewoo has abandoned a $1 billion telephone and satellite project in Kazakhstan and sold a

40% stake in the country’s telecom monopoly, Kazakhtelecom, for about $150 million.

The sales are keeping Korean companies from moving up the manufacturing chain. Synthetic-fiber maker Kohap Ltd., Korea’s 20^th-largest chaebol, took over German chemical giant BASF’s global magnetic tape business in January, 1997. Kohap renamed it EMTEC Magnetics and turned it into a moneymaker. Now, Kohap needs cash and is reluctantly selling a major stake in the tape maker, as well as synthetic-fiber plants in Mexico, Indonesia, and China. “If we could find a way to keep EMTEC Magnetics intact and still cope with the current liquidity crunch, of course we would do that,” says Chan Young Taik.

DILEMMA. One factor that could block foreign sales is the chaebol ’s low success rate with overseas ventures. As a result, they can’t sell the plants for anywhere near what they borrowed to build them. “They are in a dilemma,” says Kang In Soo, economics professor at Sookmyung Women’s University in Seul. Samsung, for example, spent $550 million to take full control of money-losing AST Research Inc. in Irvine, Calif., and injected more than $200 million in a vain bid to turn the computer maker around. It could never hope to recover such losses if it sold out. Analysts put AST’s 1997 losses at around $300 million.

The worst-off chaebol may have to settle for whatever they can get. Ssangyong, pushed close to insolvency at the end of last year, sold California subsidiary Riverside Cement Co. to Texas Industries Inc. for $120 million and got rid of two Marriott Residence Inns in Sacramento and San Diego for $30.5million. Ssangyong also has unloaded its Korean paper operation to Proctor & Gamble Co. for $85million. Such divestitures don’t bode well for the chaebol ’s goal of becoming true global companies. But glorious expansion is not the plan now. Survival is.

 

 

By Moon Ihlwan in Seul

 

BusinessWeek

NOTES

1. to beat a retreat: to give a military signal for retreating

2. Silicon Valley: a region in the west of California; the center of high-tech manufacturing, where about 3,000 companies specializing in knowledge-intensive production are concentrated (Hewlett-Packard Co., Apple Computer Inc.,to mention just a few, are among them. The world credits Silicon Valley with the invention of the first PC, contact lenses and other products which proved to be a breakthrough in the field of science and technology

3. research fellow: a member of a group having common interests, as a member of a learned society (the closest Russian equivalent is «младший научный сотрудник)

Vocabulary

1. the crisis hit (gripped, beset) разразился кризис

2. the currency soars, (goes up, rises) курс валюты резко растёт

(повышается)

the currency tumbles,(goes down, dips down) курс валюты стремительно

падает (снижается)

3. to raise cash, (finance, money, funds) привлечь, мобилизовать наличные

(финансы, деньги, средства)

 

 

4. core-business (side-line business) основной вид деятельности

(второстепенный, непрофильный

вид деятельности)

 

5. to have (to acquire) a stake in a company иметь, приобрести долю в

компании

to sell a stake in a company продать долю в компании

6. joint venture совместное предприятие

7. restructuring реструктуризация, реорганизация

8. to be under way происходить, иметь место

9. leverage (= gearing UK) = debt-to-equity ratio соотношение собственных и

заёмных средств

leveraged company компания с относительно высокой

долей долгосрочных заимствований

в её капитализации (обычно более

1/3).

10. ownership in a company долевое участие в компании

11. to assume debt признать дог

(debt assumption) признание ответственности по

обязательствам другой стороны

12.subsidiary дочерняя компания

13. proceeds поступления; 1) доход от продажи

продукции 2) сумма, полученная от

продажи ценных бумаг

14 abandon (discard) a project отказаться от проекта

to develop (launch) a project (a plan) разработать (приступить к

осуществлению) проекта (плана)

15.crunch ситуация в экономике,

credit crunch (squeeze) характеризующаяся высоким

уровнем процентных ставок и

трудностями с получением

кредита; недостаток ликвидных

средств (наличности и близких

к ней активов)

16. to recover losses возмещать убытки

17. to turn a company around изменить положение дел в

компании к лучшему

turnaround благоприятный поворот

конъюнктуры (дел в компании)

18. insolvency неплатёжеспособность

19. divestiture дивестирование, реализация актива

путём его продажи

 

Assignments

I. Suggest the Russian for the following:

1. feared by rivals

2. burdened with debt

3. to scale back the empires

4. to seek $5 billion

5. the restructuring may be under way

6. to put sth on ice

7. headstrong expansionist

8. business lobby group

9. the agreement will be shaping up

10. Daewoo is leveraged to the hilt

11. there is movement in chipmaking industry

 

II. Find the English for the following:

 

1. во всём мире

2. основной вид деятельности

3. второстепенный вид деятельности

4. сократить вдвое

5. предложить 50% долевого участия

6. принимать на себя руководство предприятием

7. превратить компанию в предприятие, приносящее прибыль

8. взять предприятие под полный контроль

9. тщетная попытка

10. довольствоваться ч-л

11. служить хорошим предзнаменованием