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/raid1/www/Hosts/bankrupt/TCRAP_Public/991221.MBX T R O U B L E D C O M P A N Y R E P O R T E R A S I A P A C I F I C Tuesday, December 21, 1999, Vol. 2, No. 248 Headlines * C H I N A & H O N G K O N G * CHINA MERCHANTS HOLDINGS: Gets International refinancing GUANGDONG ENTERPRISES: Gov't, foreign creditors reach rehab GUANGDONG ENTERPRISES: Smaller creditors want full picture GUANGDONG ENTERPRISES: Banks see silver lining in rehab GUANGDONG INVESTMENT: Shares dumped on news of restructure GUANGNAN HOLDINGS: Shares dumped on news of restructure WELBACK HOLDINGS: Changing focus after posting loss * I N D O N E S I A * BANK BALI: Bank Bali plunges on StanChart pullout BANK MANDIRI: Overseas operations face closure BANK PUTERA: IBRA gives funds to quell depositor rush * J A P A N * KOBE STEEL: To sell paint robot division to Kawasaki Heavy KOKUMIN BANK: Yachiyo Bank set to take over * K O R E A * DAEWOO GROUP: No foreign debt rescheduling this year DAEWOO MOTOR: Hyundai joins hunt for troubled motor co. DAEWOO MOTOR: Union opposition arises to GM takeover KOREA FIRST BANK: Final sale agreement signing next week KOREA MINTING SECUR. PRINTING: Strike scandal probe over * M A L A Y S I A * MCSB SYSTEMS: Warrant extension rejection to bring cash PRECAST PRODUCTS SDN: Facing a winding up petition VALLEY CITY SDN: Facing winding up petition * P H I L I P P I N E S * BANCO DE ORO: PBCom merger talks bog down MONDRAGON INT'L PHILIPPINES: Creditors in settlement mood * T H A I L A N D * ONPA INTERNATIONAL PLC: ONPA delays signing debt deal PACIFIC RESORT CO. LTD.: To sell shares in two affiliates SINO-THAI ENGINEERING: Seeks bankruptcy court protection THAI PETROCHEMICAL INDUS.: Creditors okay equity raising TRI PETCH ISUZU: Recapitalizes for debt reduction ============================== C H I N A & H O N G K O N G ============================== CHINA MERCHANTS HOLDINGS: Gets International refinancing -------------------------------------------------------- Mainland-controlled China Merchants Holdings yesterday announced it has raised US$100 million on the international debt market, reflecting foreign banks' renewed confidence in mainland companies. The financing deal came one day after the Guangdong provincial government and creditors of effectively bankrupt Guangdong Enterprises (Holdings) reported a major breakthrough in the restructuring of nearly US$6 billion of debt. China Merchants Holdings, the parent of listed China Merchant Holdings (International), yesterday signed a deal to issue five-year private placement notes of US$100 million to Credit Agricole Financial Products Bank and Centre Solutions (Bermuda). Frank Fan Di, the company's chief financial officer, said the money would be used to reduce the firm's short-term debt and bring its debt level to 30 per cent from 46 per cent by the end of this month. Mr Fan also said China Merchant Holdings was expected to sell non-core assets worth HK$4 billion over the next three years but did not provide details. He said the company had more than five billion yuan (about HK$4.66 billion) in cash. (South China Morning Post 18-Dec-1999) GUANGDONG ENTERPRISES: Gov't, foreign creditors reach rehab ----------------------------------------------------------- Hong Kong Ending a yearlong deadlock, the Guangdong government and a group of foreign creditors reached a preliminary agreement to restructure a troubled investment company that had come to symbolize the woes of lending to China's debt-bloated state firms. Under the plan, Guangdong Enterprises, or GDE, will swap its liabilities in return for new bonds, equity and cash. The deal, if approved in a January meeting, gives creditors a 19% stake in a new water company and HK$14 billion (US$1.8 billion) in new debt issued by that company. The provincial government has also pledged 600 million shares in a key subsidiary, Guangdong Investment, as well as interest in other units. Those involved in crafting the pact said its outcome should help remove a mountain of debt from GDE ranging between US$3.5 billion and US$4.5 billion and minimize losses for lenders. "What we have today is better deal than at one stage seemed possible," said Mervyn Davies, chief executive of Standard Chartered Bank, the liaison bank in the creditors' Sterling Committee. "Looking back, December 1998 was a very bad month for banks." For Guangdong, the prognosis is also brighter. A year ago, it faced not only the massive task of restructuring GDE, but also the bankruptcy of its lending arm, Guangdong International Trust and Investment Corp., or Gitic. Combined the two owed nearly US$10 billion. The central government's decision to shut down Gitic while bringing in U.S. investment firm Goldman Sachs to revamp GDE battered investor confidence, tightened lending to China and caused foreign banks to boost provisions for bad debts. Officials at both companies came under criminal investigations for untraceable loans and shady investments. Guangdong's problems were mirrored in other parts of the country as China's state companies sought to pay mounting debts and nervous creditors reeled in loans. Vice Governor Wang Qishan expressed hope Thursday that the GDE deal would help restore confidence of foreign investors. He said it showed that Chinese companies could resolve their debt troubles in a market-oriented way. Yet Mr. Wang's own leading role in the deal-making process underlined how essential the government still is in cleaning up major financial messes. Indeed, Mr. Wang said the province would be getting a huge cash loan from China's central government to address its financial problems. Beijing agreed to extend 35 billion yuan ($4.2 billion) to provide backing for the deposits of "ordinary people" in rural credit cooperatives, provincial trust companies and securities firms that had suffered losses, he said. Despite the loan, Mr. Wang predicted that about 14 of those companies face imminent closure. Mr. Wang said the loan would be paid back within nine years. "We think this money is sufficient," he added. Analysts said the central-government loan and the GDE restructuring highlights the push on the part of China's leaders to repair trouble spots in the economy before it embarks on a new path of opening up. The agreement China signed last month with the U.S. to enter the World Trade Organization has boosted short-term sentiment, but raised questions about how crippled state firms in troubled parts of the country can expect to compete. Still China's richest province, Guangdong's economy has been struggling to get back on its feet. (The Asian Wall Street Journal 17-Dec-1999) GUANGDONG ENTERPRISES: Smaller creditors want full picture ---------------------------------------------------------- Minor creditors of Guangdong Enterprises (GDE), representing the majority, yesterday said they wanted to see more details and work out how much the repayment package was worth to them before deciding whether to follow major creditors lead on agreeing with the restructuring plan. "It appears to be a better deal and the steering committee is very happy," said a manager of one European bank. "But it is hard to do a risk analysis when we do not have the full picture yet." Bank of China chief executive for Hong Kong and Macau, Liu Jinbao, yesterday said the steering committee _ composed of 17 creditor banks, including the Bank of China _ would early next month start to convince the other 109 creditors to accept the restructuring plan and avoid winding up GDE. Mr Liu said he was confident a majority of creditors would accept the restructuring proposal. Analysts said the fact that creditors would have the right to participate in the management of GDE was a key factor leading to the major creditors' endorsement of the restructuring plan. The major breakthrough for creditors in the revised plan was the removal of the preference shares swap. "The future funding of businesses would have to be approved by the creditors," said Kang Dian, chairman of Guangnan, the group's supermarket arm. Mr Liu said the improved deal would enable the Bank of China to write off some of its 35 per cent of the provisions. "We (Bank of China and its sister banks) said earlier this year that we have basically attributed about 20-35 per cent of the group's provisions on GDE, varying with each bank," he said. "If the provisions on GDE are about 35 per cent, and the debt restructuring agreement gets the company on its feet, then we may write back part of the 35 per cent provisioning." This would take years, provided that GDE improved its operation and management. There might eventually be no need for provisions if GDE strengthened its operations and management. Guangnan and GDI, an investment arm of GDE, topped the stocks with greatest loss yesterday, down 17.6 per cent and 17.3 per cent respectively, closing at 42 cents and $1.29. Mr Kang said the plummeting of Guangnan shares was due to the proposed 17-for-two right issue which would dilute the share value. It could also be a "buy on rumour and sell on news" effect, according to Herbert Lau, Celestial Securities associate director. Guangnan shares had risen more than 24 per cent so far this month to Wednesday's close of 51 cents, before the suspension for the Thursday agreement announcement.GDI shares rose 69 per cent in the period, to $1.56 on Wednesday. (Hong Kong Standard 18-Dec- 1999) GUANGDONG ENTERPRISES: Banks see silver lining in rehab ------------------------------------------------------- Banks might be able to write back some of their loan-loss provisions against their exposure to Guangdong Enterprises (Holdings) (GDE), according to the Hong Kong Association of Banks. HKAB chairman Liu Jinbao said the in-principle agreement on GDE's restructuring reached on Thursday was much better than creditor banks originally expected. The Guangdong provincial government's commitment to conclude the arrangement by the end of this month and generous concessions increased the chance all creditor banks would give it the go-ahead, Mr Liu said. "We now see that Guangdong's government has put GDE restructuring in a very high priority," he added. "We see the operating environment of GDE and other international trust and investment corps much improved from before." Mr Liu said GDE now had "a bright future". Banks might not need to make such heavy provisions, he said. The amount a bank could write back would depend on the extent of provisions already made, the nature of its exposure and the amount of collateral under its control. The Hong Kong Monetary Authority's provisions policy, states the longer the repayment of interest and loan principal had lapsed, the bigger the provisions a bank needed to make. Still, the HKMA has allowed banks more flexibility. "It would be up to individual banks to decide how to make provisions on GDE loans based on the currently available information," HKMA chief executive Joseph Yam Chi-kwong said. "The HKMA will follow the usual approach to discuss with banks . . . their provision policies related to GDE loans on a case-by-case basis," he said after attending a seminar held by the Hong Kong Institute for Monetary Research. Speaking as the Bank of China Group's Hong Kong and Macau chief executive, Mr Liu said most of its 12 member banks had already made provisions ranging from 25 to 30 cents in a dollar against their GDE exposure. Bank of China, a group member, has the highest exposure to GDE among creditor banks. "The crucial point here is the management of GDE as a business concern after the agreement," Mr Liu said. "If it performs properly and repays the loans as scheduled, we might not even need to provide a penny." Mr Liu said the write-backs could be included in the banks' accounts for this year as post-balance sheet date entries. The latest restructuring plan was signed by Guangdong executive vice-governor Wang Qishan and the working group of nine creditor banks. It needs to be approved by the rest of the 110 creditor banks. Mr Liu said the restructuring experience would become a landmark case for restructuring of other mainland enterprises. "The GDE restructuring experience highlights the need to reform our credit culture," Mr Liu said. "We should not rely too much on the borrowers' government backing. We should concentrate on their cash-flow situations and future prospects." Mr Yam was even more optimistic. The agreement would help restore the confidence of SAR banks to lend to the mainland enterprises, the HKMA chief said. "The credit crunch faced by the mainland enterprises and the red chips will be over soon," Mr Yam said. "Banks should feel more comfortable to lend to the mainland enterprises after the agreement." (South China Morning Post 18-Dec-1999) GUANGDONG INVESTMENT: Shares dumped on news of restructure GUANGNAN HOLDINGS: Shares dumped on news of restructure ---------------------------------------------------------- Guangdong Investment (GDI) and Guangnan (Holdings) both tumbled more than 17 per cent yesterday, as investors dumped shares on news of a fresh debt-restructuring accord for parent Guangdong Enterprises (Holdings) (GDE). GDI's shares lost 27 cents to HK$1.29 after reaching a day's low of HK$1.28, as investors assessed the new plan's impact on GDE's SAR-listed flagship. An announcement by GDI that its per-share earnings would be enhanced from the injection of a water project, which earned HK$1.9 billion last year, failed to help sentiment. Share prices of GDE subsidiary, Guangnan, fell nine cents to close at 42 cents. GDE said on Thursday an in-principle agreement had been reached between the Guangdong provincial government and a working group of its creditor banks on a US$5.59 billion restructuring plan. Under the plan, GDI would issue 2.3 billion new shares at about HK$1.30 apiece in exchange for 81 per cent interest of the Dongshen Water Project from the provincial government. The project supplies about three-quarters of Hong Kong's water. As for Guangnan, it would raise HK$755 million in new equity through a 17-for-two rights issue as well as moving substantially all its non-core business to an asset-management company. Brokers said the significant dilution effect resulting from the issue of new shares by both companies had contributed to the sharp fall of their share prices. Kang Dian, director and vice-president of GDE, defended the dilution from the issue of new shares. "Guangnan has a HK$1.3 billion shortfall in net asset, it is obvious that creditors will have a bigger say," he said. Meanwhile, Beijing would continue its drive to push through the restructurings of the embattled international trust and investment companies (Itics) next year, a People's Bank of China official said. Details would be announced by central bank governor Dai Xianglong during a meeting with the press next month, the official said. The meeting, which would unveil the central bank's yearly goals and working plan for the new year, would also touch on other lesser-regulated parts of the financial system, he said. Issues involving domestic small to medium-sized non- bank financial institutions would be included, he said. Guangdong executive vice-governor Wang Qishan said the province would shut down 14 Guangdong-based Itics after paying off depositors with 38 billion yuan (about HK$35.48 billion) worth of borrowings from the central government. The effort is continuing in Hainan Island, where central bank officials are to meet in Haikou to help finalise plans to restructure the island's troubled non-bank financial institutions. (South China Morning Post 18-Dec-1999) WELBACK HOLDINGS: Changing focus after posting loss --------------------------------------------------- Troubled electronics-maker Welback Holdings is shifting its long-term focus to interactive toys from liquid-crystal- display video games after sustaining its biggest loss last year. In the year to June 30, the company had a net loss of $27 million, compared with a net profit of $13.9 million the previous year. Turnover was halved to $258 million in the period due to a failure to develop new products fast enough to meet market demand. Inventory grew to $56.99 million from $50.91 million in the previous year. The company has hired Xu Yangsheng, a mechanical and automation engineering professor at Chinese University to help develop the "intelligent" toys, and plans to recruit other mainland talent. Managing director Fong Wing-seng said the company had developed two prototypes, and was aiming to introduce eight interactive toys to the market by 2001. Welback has also developed original design and manufactured electronic products, including digital voice recorders and digital cameras, which hopefully will put it back into the black this financial year. (South China Morning Post 18-Dec- 1999) ================= I N D O N E S I A ================= BANK BALI: Bank Bali plunges on StanChart pullout ------------------------------------------------- PT Bank Bali's shares plunged 47 percent Friday after Standard Chartered PLC pulled out of an agreement to take over the Indonesian lender. Standard Chartered's withdrawal, a blow to Jakarta's efforts to rejuvenate its banking industry, came after a government corruption scandal involving Bank Bali as well as massive protests against the British bank by the Indonesian bank's staff. Bank Bali's shares closed 225 rupiah lower at 250 (35 cents). Standard Chartered's withdrawal Wednesday came only weeks before the Indonesian Bank Restructuring Agency is to seek formal shareholder support for a rights offer to raise 4.04 trillion rupiah to recapitalize Bank Bali. Although Standard Chartered said it was still interested in buying Bank Bali shares from the restructuring agency after the rights issue, officials and dealers said the saga would send a chill through foreign investors. "It's a setback," said Laksono Widodo, head of research at ING Barings Securities. "Foreign investors will now think twice before investing their money here and it is also quite a major setback to the whole bank restructuring program." The investment and state enterprises minister, Laksamana Sukardi, also said Friday that Standard Chartered's decision was likely to harm the investment climate in Indonesia. "If there are more cases like this, where investors move in and then pull out again, people will question our legal certainty," he said. But the deputy governor of Bank Indonesia, Subarjo Djoyosumarto, said he saw no significant impact on the investment climate following the collapse of the deal. (International Herald Tribune (18-Dec-1999) BANK MANDIRI: Overseas operations face closure ---------------------------------------------- State-owned Bank Mandiri is in danger of losing its overseas operations if its financial status does not improve in the near future, Bank Indonesia Deputy Governor Subardjo Joyosumarto said on Friday. Subarjo said monetary authorities in the United States, Hong Kong, Singapore and Cayman Islands had threatened to close down Bank Mandiri's branches in their respective territories. "If the branches are closed, it will destroy our banking image in the international market. That's why we have to recapitalize Bank Mandiri by the end of December," Subardjo was quoted by Antara as saying. He said Bank Indonesia had informed the relevant overseas monetary authorities about the government's plan to recapitalize the bank so that they would not close down its branches. The government and the House of Representatives agreed on Thursday night to proceed with the costly recapitalization by the end of this month to turn the bank into the black. The cost of the delayed recapitalization of Bank Mandiri will rise to between Rp 178 trillion and Rp 180 trillion, from the initial estimate of Rp 137.8 trillion, according to a recent audit by Arthur Anderson. The costly recapitalization aims to raise Bank Mandiri's capital adequacy ratio to the government-established 4 percent minimum. Bank Indonesia's senior deputy governor Anwar Nasution revealed the rising cost of Bank Mandiri's recapitalization was as a result of the delay in its implementation, initially planned for July. The delay itself, Anwar said, was precipitated by the complication of merging four former state banks -- Bank Bumi Daya, Bank Ekspor Impor, Bank Pembangunan Indonesia and Bank Dagang Negara -- into Bank Mandiri, and the lack of coordination between governmental offices. Coordinating Minister of Economy and Finance Kwik Kian Gie said the government was committed to recapitalizing Bank Mandiri, despite the rising cost. The government issued Rp 103 trillion worth of bonds for the first tranche of the recapitalization fund for Bank Mandiri on Oct. 13. The government plans to issue new bonds to fill in the gaps in the bank's books by the end of December. Otherwise, the cost will rise further. Subardjo said Bank Indonesia is ready to transfer all the needed funds to Bank Mandiri once the finance minister signs the government bonds to recapitalize the bank. Bank Mandiri president Robby Djohan said the cost to recapitalize Bank Mandiri would still be lower than the cost of liquidating it. If the government liquidates the bank, he said, it has to provide Rp 170.5 trillion in rupiah funding and $8 billion in foreign exchange to pay the bank's obligations. In addition, the government has to pay legal costs, asset depreciation and severance payments for the bank's 17,000 employees. Bank Mandiri is expected to control a domestic market share of 30 percent. (The Jakarta Post 18-Dec-1999) BANK PUTERA: IBRA gives funds to quell depositor rush ----------------------------------------------------- The Indonesian Bank Restructuring Agency (IBRA) has announced that Rp1.00 trillion (US$ 136.05 million) have been earmarked in ancitipation of a possible "rush" by Bank Putera (BP) customers. IBRA spokesman Franklin Richard told the press here yesterday the funds had been placed in an escrow account at BCA. The Rp1.00 trillion liquidity reserve fund does not include BP's interbank claims of around Rp500 billion. The guarantee fund, according to Franklin, could be used by BP to pay out its customers, but he hoped the whole amount would not be used up. The bank's interbank claims cannot yet be released by IBRA, becuase it is awaiting the results of verification studies. Bank Putera third party funds currently amount to Rp1.8 trillion. According to BP president Mashud Ali, the rush on the bank has reached Rp400 million. The verification carried out by IBRA is designed to ascertain whether the funds were withdrawn by customers or by certain parties related to the bank. In addition, IBRA also appointed an independent auditor to verify the bank's actual condition. If the audit report reveals no violation, then BP may operate again. Franklin did not elaborate on the measures to be taken if BP has committed a violation. (Asia Pulse 17-Dec-1999) ========= J A P A N ========= KOBE STEEL: To sell paint robot division to Kawasaki Heavy ---------------------------------------------------------- Kawasaki Heavy Industries Ltd. (7012) will buy the paint robot division of Kobe Steel Ltd. (5406) by next April, company sources said Thursday. The deal will be formally announced on Friday. Kawasaki Heavy will take over the supply of robots to major clients like Toyota Motor Corp. (7203) and Honda Motor Co. (7267). It will also take on 40 development, sales and maintenance staff at its Akashi plant in Hyogo Prefecture, hoping to improve its lineup of robot paint systems. The agreement reflects Kobe Steel's desire to concentrate on its mainstay steel and aluminum operations. Kobe Steel commands a 30% share of the domestic paint robot market, ringing up annual sales of about 3 billion yen. The steelmaker develops and tests robots at its Takasago factory in Hyogo Prefecture, but outsources production, meaning no manufacturing plant is involved in the paint robot division sale. Kawasaki Heavy, Japan's fifth largest maker of welding and assembling robots, has been weak in the paint robot sector. With the purchase, the heavy machinery company plans to double sales of industrial robots to about 50 billion yen in four to five years from fiscal 1998, in an effort to keep pace with the top robot makers, including Fanuc Ltd. (6954) and Yaskawa Electric Corp. (6506). (The Nihon Keizai Shimbun 17-Dec-1999) KOKUMIN BANK: Yachiyo Bank set to take over ------------------------------------------- The Financial Reconstruction Commission and administrators dispatched to oversee failed Kokumin Bank are expected to choose Yachiyo Bank, a Tokyo-based second-tier regional bank, to take over the insolvent lender, sources said. Until recently, there were three more candidates to acquire Kokumin Bank -- Orix Corp. (8591), discount air ticket seller H.I.S. Co. and Goldman Sachs & Co. H.I.S. and Goldman Sachs subsequently dropped out as they couldn't offer acquisition terms that satisfy the Kokumin Bank side. The commission and administrators are expected to make a final decision by the end of the year. If Yachiyo Bank is selected, the amount of public funds needed to dispose of Kokumin Bank will likely exceed 100 billion yen, including funds to be injected into Yachiyo to prevent its capital from shrinking as a result of its takeover of the collapsed bank, the sources said. Kokumin Bank, also a Tokyo-based second-tier regional lender, was declared insolvent by the commission in April. (The Nihon Keizai Shimbun 15-Dec-1999) ========= K O R E A ========= DAEWOO GROUP: No foreign debt rescheduling this year ---------------------------------------------------- Despite the optimism of Korea's top financial regulators that Daewoo's foreign debt rescheduling will be resolved before the end of this year, the overseas banking community in Seoul sees no chance for early settlement. Most foreign bankers as well as other financial experts share the view that debt rescheduling will not result in any compromise within 1999 and negotiations will continue well into 2000. "There is hardly any chance for improvement in the situation over rescheduling Daewoo's $5 billion foreign debt before the end of 1999," said a foreign financial expert in Korea. "The two sides are not agreeing at all as far as the loss, or haircut, ratio goes. Besides, trust has been lost between the two sides, Korea's financial regulators and Daewoo's foreign creditors." The Korean government still stands firm with its loss ratio of 76.7 percent imposed on Daewoo's foreign debts. That is, the financial authorities will repay 23.3 percent of Daewoo's foreign liabilities in cash should foreign banks agree to take the 76.7 percent haircut for Daewoo's four major business units. The highest loss ratio of 82 percent is assigned to Daewoo Corp. debt while 35 percent is imposed on Daewoo Heavy Industries' liability. The ratios for Daewoo Electronics and Daewoo Motor are 66 and 67 percent respectively. The Seoul administration believes this is the structure that Daewoo's foreign creditors have demanded in order to claim cash back for their non-performing loans. The Korean government said that Seoul will not scrap the equality principle, whereby both domestic and foreign creditors would assume the same loss ratio of over 75 percent. Foreign banks on the other hand offered their official position last week during a meeting with Daewoo's financial advisors in New York, saying their losses will not exceed 20 percent. Simply put foreign creditors want the Korean side repay 80 percent of their credits in Daewoo, a figure much higher than expected. At the same time, overseas lenders argue that there should be no difference in losses between their loans in Daewoo Corp. and Daewoo Heavy Industries, for example, as the group is considered "a single economic entity." The foreign lenders have argued that since Daewoo had acted as a group when borrowing money from overseas, the same haircut should be imposed on all foreign debt. They claim that an 82 percent loss of Daewoo Corp. debt, in particular, is much higher than the ratios imposed on others and is unacceptable. "To me, the foreign banks' argument seem reasonable. No one can deny that Daewoo is a single business entity. Under this circumstance, all foreign loans of Daewoo should receive the same treatment," said a top securities expert in Seoul. The equality principle of the government also does not convince Daewoo's foreign creditors because there is no such thing as real equality in the Korean government's policy. "Now, when it comes to imposing losses, the Seoul administration relies on an equality framework between local and foreign banks. Ironically those government officials who treated foreign banks so unfairly for the last few months now call for the equality principle," said a foreign creditor. The foreign banker added that they would not accept the policy, which imposes inaccurate loss ratios on both domestic and foreign creditors. "We cannot accept the loss ratios imposed on domestic banks, to begin with. The figures are derived from inadequate studies. For foreign banks it is not the matter of equality but rather a question of accuracy," he said. (Korea Herald 20-Dec-1999, Korea Times 19-Dec-1999) DAEWOO MOTOR: Hyundai joins hunt for troubled motor co. ------------------------------------------------------- In what appears to be an official announcement to join in the race to take over the ailing Daewoo Motor, a high- ranking Hyundai official said Sunday that the largest Korean chaebol is interested in acquiring Daewoo Motor's production plant in Poland. Lee Kye-an, president of Hyundai Motor, revealed that, if the government and the creditor group of Daewoo Motor agree to sell Daewoo Motor in parts, Hyundai is interested in taking over Daewoo's Poland plant. Lee, however, remained taciturn whether Hyundai intends to take over the entire Daewoo Motor operations. Lee justified the Hyundai move by citing a global automobile industry trend, in which car export takes the shape of production as well as marketing within the importing nations. Industry observers said that Hyundai's announcement to take over Daewoo Motor will heat up since Hyundai is due to compete against General Motors and Ford, which have been pressing on with the acquisition bid. Lee expressed his doubt over the 'efficiency' of the plan to sell Daewoo Motor to GM, asserting that the sell-off to the giant automaker can undermine the Korean auto industry. The Hyundai president also refuted Hyundai Motor's chance of getting a monopoly in the auto industry if the top two Korean auto companies merge by saying a monopoly might enhance the nation's economic competitiveness. (Digital ChosunIlbo 19-Dec-1999) DAEWOO MOTOR: Union opposition arises to GM takeover ---------------------------------------------------- General Motors Corp.'s controversial takeover bid for Daewoo Motor Co. and Ssangyong Motor Co. will have to overcome stubborn resistance from Korea's business circles and academia if it is to succeed. The latest show of opposition came in the form of Daewoo Motor's labor unionists who threatened a walk out over the weekend in the event of a "unilateral" decision to sell the company to the U.S. automaker. Unionists at Ssangyong Motor had also vowed to strike should there be any attempt to sell the sports utility vehicle maker to GM. In a similar vein, the Federation of Korean Industries (FKI), the nation's largest chaebol trade association, came out against Daewoo's sale to GM, warning that selling the Korean automaker to a foreign firm would herald the decline of the nation's auto industry. A growing number of domestic scholars and economists are also lining up in opposition. "Dispute with management and the government cannot be avoided if they proceed with the sale of the company to General Motors as in the present situation," said Chung Jong-seung, a Daewoo Motor union leader. "The labor union's stance is that the government and creditors should first turn Daewoo Motor into a public corporation so that company operations can return to normal." Reflecting the mounting anxiety, Kim Dae-ho, a Daewoo Motor employee, said in a letter to the Hankyoreh newspaper that GM's acquisition will transform Daewoo into a domestic market-oriented automaker, stripped of vast overseas production bases, export capabilities and a network of R&D and technological infrastructures. "Worse yet, GM has a bad track record as far as job security is concerned. The notorious layoffs of 200,000 GM workers in 1980s were followed by similar job cuts affecting 5,200 employees between 1992 and 1996," Kim said, adding that an annual average of 300 to 400 Daewoo Motor workers were laid off during its 15-year alliance with GM until 1992. In its letter of intent presented to the Korean government, GM offered to buy Daewoo Motor for between 6 trillion and 7 trillion won, but refused to assume any of Daewoo's 18.6 trillion won debt. In addition, the Detroit firm rejected the proposal to take on Daewoo Motor's operations at home and abroad as a whole and its stance toward job security was considered unclear. "A quick resolution to the Daewoo Motor issue is unlikely because of the resistance from local industrial associations, professors and even government officials," said Richard Samuelson, head of research at SBC Warburg Dillon Read in Korea. Goldman Sachs & Co. also said in a report that the possibility of GM's takeover of Daewoo Motor is becoming increasingly remote. (Korea Herald 20-Dec-1999) KOREA FIRST BANK: Final sale agreement signing next week -------------------------------------------------------- The government and Newbridge Capital Ltd., a U.S. private investment fund, are likely to sign a formal deal on the sale of Korea First Bank (KFB) next week, a KFB official said yesterday. The official also said that Newbridge is likely to appoint a Japanese-American new president of KFB as soon as the formal contract is signed. "It is certain that both sides will conclude their negotiations on the sale of KFB and sign an official contract around next Thursday at the earliest," the KFB official said. The signing of the formal contract will wrap up the government's efforts to sell the nationalized bank, considered a litmus test for Korea's economic reform. On Sept. 17 this year, the two sides signed a temporary agreement under which the U.S. investment fund will take over a 51 percent stake in KFB for 600 billion won ($531 million). In addition, Newbridge agreed to invest an additional 200 billion won over the next two years in the troubled bank, which collapsed in the wake of Hanbo Iron and Steel Co.'s bankruptcy in early 1997. The KFB official also said that Jerry Horry, a Japanese-American who owns a commercial bank in the United States, may take the helm of KFB. "Jerry Horry is one of the strongest candidates for the KFB presidency but nothing has been decided yet," he quoted Weijian Shan, Newbridge's managing director, as saying. If appointed as KFB's new head, the Japanese-American will become the youngest bank president in the nation. Meanwhile, KFB's board of directors yesterday decided to reduce its capital to 980.6 billion won from 4.34 trillion won. Currently, the Korea Deposit Insurance Corp. owns a controlling 96.9 percent stake in the nationalized bank. KFB, which has a staff of 4,816 and 336 branches across the nation, posted a loss of 2.1 trillion won in the first nine months of fiscal year 1999. (Korea Herald 18-Dec-1999) KOREA MINTING SECUR. PRINTING: Strike scandal probe over -------------------------------------------------------- The independent counsel investigating the "strike-rigging" scandal officially wound up its 60-day probe yesterday, concluding that a former head of the state minting firm was the main force in fomenting a labor strike at the company last year. Independent Counsel Kang Won-il announced the result of the investigation after reporting its findings to the President and the National Assembly. According to the special prosecutor's findings, Kang Hi-bock, former head of the Korea Minting and Security Printing Corporation, induced the firm's union to strike by proposing an unacceptable compromise to the union. Kang, who was arrested last Saturday on charges of obstructing corporate business, pushed ahead with a merger of the firm's two minting plants last year, two years earlier than originally scheduled. The special prosecutor's team said Kang's behavior was motivated by his ambition to receive credit for effectively restructuring his company. The independent counsel's findings run counter to the result of a prosecution investigation of the scandal in July. The prosecution had seen the inducement of the strike as a former senior prosecutor's one-man plot to earn credit as head of the public security department at the Supreme Public Prosecutor's Office. The independent counsel concluded that Kang was the main force behind the strike and the former prosecutor only an accessory. However, the independent counsel concurred with prosecutors that neither the prosecution nor other government agencies had been involved in rigging the strike. Such suspicions of government authorities' organized involvement in the scandal has been growing, following the recent disclosure of a prosecution report that contains suggestions on how to deal with labor disputes at the minting firm. Despite activists' claims that the report is clear evidence of the prosecution's organized involvement, the independent counsel has concluded that the report is not sufficient proof for accusing the entire prosecution. Instead, Independent Counsel Kang requested that the prosecution investigate the two prosecutors and two regional labor administration officials who drew up the report on charges of violating labor laws. Meanwhile, another independent counsel, who has been looking into the "furgate" scandal, is scheduled to announce the outcome of his investigation Monday. (Korea Herald 18-Dec-1999) =============== M A L A Y S I A =============== MCSB SYSTEMS: Warrant extension rejection to bring cash ------------------------------------------------------- MCSB shareholders did not object to the bondholders' decision on Monday to reject the extension of the 1995/2000 warrants due to expire on April 30 next year. Chairman and chief executive officer Paul Lim Koon Chow reports that with the rejection of the extension of the warrant period, the company is expecting a cashflow of RM28.5mil from the conversion of all its 11.7 million warrants. "We will use part of the money to pay off RM10mil to our bondholders and utilise the rest for working capital. We will then have recovered financially and be debt free," he said. He also said the company was looking at a possible injection of RM14mil from the conversion of its other series of warrants due to expire in 2004. Lim said MCSB bondholders did not give their reasons for rejecting the 1995/2000 warrants' extension period as they were represented by proxies. He said Malaysia's economy had now recovered and that uncertainties over the country had been removed after the recent general election. "My guess is that the bondholders are in an investing mood and wanted the money. Although the scope of the computer systems outsourcing business is quite wide, we plan to concentrate on four areas," Lim said without disclosing details. IT-based MCSB Systems (M) Bhd expects RM100mil turnover from its new computer systems outsourcing and e-business services to be launched in the region next year. Its aid the computer systems outsourcing concept was new in the region although it had been around in the United States for some time. In the computer systems outsourcing business, IT companies offer services from maintenance, upgrading, repairing to even programing of their clients' equipment. Lim said the computer systems outsourcing business was worth US$100bil a year in the United States. Citing an example, Lim said General Motors Corp had a 10-year computer outsourcing contract worth US$5.6bil with Electronic Data Systems. MCSB, which would launch its new services in Malaysia, Singapore, Indonesia, Hong Kong and China, also plans to expand the service to other neighbouring countries. The company recorded a pre-tax loss of RM9.5mil on a turnover of RM87mil for the 15 months to June 30, 1999. For its financial year ended March 31, 1998, the company recorded a pre-tax loss of RM14mil on a turnover of RM57mil. (Star Online 19-Dec-1999) PRECAST PRODUCTS SDN: Facing a winding up petition -------------------------------------------------- Hume Industries Bhd unit Precast Products Sdn Bhd has been served a winding-up petition by Arab-Malaysian Bank Bhd arising from a default in the repayment of loan and interest totalling RM3.3mil. Hume said in a statement to the KLSE that Precast failed to settle its loan repayments due to the depressed economic conditions which adversely affected the construction industry. Hume has fully written-off its investment in Precast in June this year, it said. "The winding-up petition has no significant or material financial implication on Hume, as Hume has not given any guarantee for Precast's credit facilities," it added. (Star Online 18-Dec-1999) VALLEY CITY SDN: Facing winding up petition ------------------------------------------- IGB Corporation Bhd announced yesterday a winding up petition has been presented against its subsidiary Mid Valley City Sdn Bhd, and was advertised on Dec 10, 1999. However, Messrs V Siva & Partners, solicitors for Mid Valley, had on Dec 14 filed an urgent application to strike out the petition as an abuse of process. The company said this in a statement to the KLSE, which was released yesterday. IGB said no date had been fixed for hearing although the application was accompanied by a certificate of urgency. According to IGB, the petition was founded on a judgment made on May 11, 1999, and that Mid Valley had filed an appeal to the Court of Appeal. No date had been fixed for the hearing of the appeal, it said. In the meantime, Mid Valley has provided a bank guarantee to secure the judgment debt pending the disposal of the appeal to the Court of Appeal. The petitioning creditor's solicitors had rejected the bank guarantee, IGB said. It said Mid Valley City's solicitors were taking steps to expedite the hearing of the application to strike off the petition. (Star Online 18- Dec-1999) ===================== P H I L I P P I N E S ===================== BANCO DE ORO: PBCom merger talks bog down ----------------------------------------- Banco De Oro Universal Bank, the banking arm of retail magnate Henry Sy, has dropped its bid to acquire Philippine Bank of Communications, banking sources said yesterday. The sources said the merger deal being hatched by the two banks did not push through because of failure to thresh out certain valuation issues. "The merger won't push through anymore. They didn't agree on the pricing issue," the source said. The two banks were expected to be able to strike a deal before the year's end. Instead, the sources said PBCom, whose earlier merger discussions with Asian Banking Corp. also fizzled out, would simply pursue its original plan to downgrade its status into a regular commercial bank. But other sources said that since Banco de Oro was only one of the banks which had laid a proposal on the PBCom's table, it would still have the flexibility to evaluate and accept other offers. Publicly listed PBCom has an expanded commercial bank license. A downgrade means that it will have to give up the right to engage in certain non-allied undertakings like stock brokerage, real estate development and industrial ventures. Sources said BDO also has a lot of other options, especially since its stockholder, retail tycoon Henry Sy, has sufficient war chest to fund the expansion of his empire. The taipan is likewise still keen on consolidating his banking interests. Sy, who owns 100 percent of BDO through various corporations, also has around a 20-percent stake in China Banking. On the other hand, he recently unloaded his stake in Far East Bank and Trust Co. BDO was planning to list at least 10 percent of its shares to the public by next year as part of the Bangko Sentral ng Pilipinas requirements for it to expand into a universal bank. PBCom earlier entered into a merger discussion with Asian Banking Corp. but this likewise did not push through. Asian Bank was recently acquired by the Metropolitan Bank and Trust Co. for its subsidiary Global Business Bank. A BDO-PBCom merger would have brought about a bank with a combined capital base of at least P9 billion and a nationwide network of 155 branches. BDO is a profitable bank with a capital base of P4.7 billion as of the end of the first quarter. As of the same period, it had total deposits of P28.3 billion and a total loan portfolio of over P23 billion. BDO has total resources amounting to P42.8 billion and a total of 110 branches as against PBCom's 45 nationwide. (Philippine Daily Inquirer 18-Dec-1999) MONDRAGON INT'L PHILIPPINES: Creditors in settlement mood --------------------------------------------------------- Creditors of Mondragon International Philippines said they were open to an amicable settlement with the management of the leisure and gaming firm to avoid a protracted dispute. Their decision followed the Securities and Exchange Commission's order to Mondragon and its creditors to settle their dispute amicably. Mondragon chairman Jose Antonio Gonzales and creditor banks Asian Banking Corp., United Coconut Planters Bank, and Far East Bank and Trust Co. are fighting for control of the hotel and casino operator. Gonzales has deposited as collateral to the banks 369.44 million Mondragon shares in exchange for their loans under an omnibus loan and security agreement. The deal entitles the banks to voting rights over the Mondragon shares, representing 54.21 percent of the total outstanding shares of the company, in case of default. The banks have told the SEC they are willing to settle with Mondragon as long as the terms are reasonable. They said they were willing to renegotiate Mondragon's major contracts-especially those with the Clark Development Corp. and Philippine Amusement and Gaming Corp.-to attract investors into the company. The banks are also asking the SEC to reconsider an order stopping them from exercising their right as stockholders and officers of the leisure and gaming firm. They said Mondragon's default now entitled them to call meetings and nominate or remove board directors. Mondragon used the bank loans to build a casino, bungalows, and a hotel within the Mimosa Leisure Estate at the Clark Special Economic Zone for its subsidiary Mondragon Leisure and Resort Corp. Mondragon International has had difficulties repaying its creditor banks since Clark Development took over the Mimosa leisure estate early this year and the Philippine Amusements and Gaming Corp. closed the casino after Mondragon failed to pay the rent. Mondragon International reclaimed Mimosa a few months ago, but its casino permit has been cancelled. It agreed to pay its P375-million obligations to Clark Development in installments up to June 30, 2000. (Manila Times 20-Dec-1999) =============== T H A I L A N D =============== ONPA INTERNATIONAL PLC: ONPA delays signing debt deal ----------------------------------------------------- Onpa International Plc has delayed the signing of its debt restructuring deal with creditors from yesterday until sometime next week. The signing was postponed a week because the documents were incomplete, said Onpa's financial adviser, Prinyar Prinyarnussorn, senior vice president of Seamico Securities Plc. "There is no serious problem. It's just a matter of incomplete documents. Details of the agreement remain the same, and there will be no changes. Although the actual date has yet to be fixed, the signing will be some time next week," he explained. The company has Bt780 million worth of debt that is not backed by collateral. In addition, it has about Bt326 million in debt that is backed by collateral. From the Bt780 million worth of unsecured debt, creditors will take a Bt270 million haircut; Bt310 million will be repaid immediately; and about Bt200 million will be repaid over seven years. Recently, the company's shareholders approved raising its registered capital from Bt750 million to Bt3.23 billion by issuing new common shares. A majority of the new shares will be offered to Broadcasting Network Thailand Ltd (BNT). After the capital increase and restructure, BNT could own as much as 76.78 per cent in Onpa and existing shareholders could see their stake diluted to just 23.22 per cent. (The Nation 18-Dec-1999) PACIFIC RESORT CO. LTD.: To sell shares in two affiliates --------------------------------------------------------- Pacific Assets Plc (PA) gave approval on Wednesday to its affiliate Pacific Resort Co Ltd to sell off shares in two of its unproductive companies. Pacific Restaurant Co Ltd and Pacific Travel Management Co Ltd will be sold so PA can concentrate on its core-business areas, a filing to the Stock Exchange of Thailand stated. PA would sell its interest in the Pacific Restaurant to Krua Baan Puen Ltd for Bt2 million, while Pacific Travel Management would go to BDF Ltd at a price of Bt500,000. The transaction will be completed by Dec 28, 1999. As of September 1999, Pacific Restaurant posted an accumulated loss of Bt3.9 million, while Pacific Travel Management's losses stood at Bt5.2 million. Janinthorn Wongse-Thonge, corporate communications manager of PA, said the sale of the shares would be in line with the company's policy to pull out of non-core businesses and focus on core areas that include hotels, office buildings and serviced apartments. The moves were made in order to enter into a debt restructuring agreement. By unloading the companies Pacific Resort would help ease the debt burden of the parent company, said Janinthorn. Meanwhile, PA's board also approved Praewa Co Ltd's proposal to transfer its lease rights to PA for a debt payment of Bt107.047 million. The assets include a 6.5-year lease of a 479-square metre office space in the Nai Lert Building, and a 15-year lease of a 1,860-square metre office space in the Silom Centre Building. The lease rights are appraised at Bt400 million and Bt500 million respectively. Under the agreement, Praewa has the option to buy back the lease rights. The two also agreed to waive all accrued interest charges (both charged to and charged from). The calculation of the debt settlement will be based on principal loan amounts between the two companies. (The Nation 18-Dec-1999) SINO-THAI ENGINEERING: Seeks bankruptcy court protection -------------------------------------------------------- Sino-Thai Engineering and Construction Plc (Stecon) and its creditors yesterday jointly sought protection from the Central Bankruptcy Court for a plan to restructure the company's 6.38 billion baht in debts owed to 1,245 creditors. The listed construction company told the court that its business had been affected by the economic crisis and foreign exchange losses. It said that it would be able to recover once the economic crisis eased and the currency stabilised. The restructuring plan, jointly worked out with creditors, had been approved by more than 75% of the creditors, it said. The company has proposed Anuthin Charvirakul and Udomsak Chakriyavanich as joint planners. The court had scheduled the first hearing for Jan 17. (Bangkok Post 18-Dec-1999) THAI PETROCHEMICAL INDUS.: Creditors okay equity raising -------------------------------------------------------- In an abrupt about-face, the creditor steering committee of Thai Petrochemical Industry Plc has endorsed the firm's proposal to raise an additional US$1 billion equity next year as part of its debt-restructuring plan. The committee with 68 per cent of TPI's total debt of $3.5 billion rejected the equity-raising proposal on Dec 7, arguing that it represents a principal change of the debt workout plan agreed to by the two sides in February this year. Some of the creditors had also threatened to take the firm to court if TPI failed to abide by the original plan before Jan 17. With the endorsement now by the creditors' steering committee (on the equity proposal), Prachai Leopairatana, the major shareholder and chief executive of TPI, appears to have struck a compromise with creditors. It was reported that MR Chatu Mongol Sonakul, governor of the Bank of Thailand and chairman of the Corporate Debt Restructuring Advisory Committee, had intervened after Prachai's plan to raise the massive equity was stonewalled by the creditors' steering committee. In the original plan, the amount of equity raising was not specified, while the timetable was not as early as next year. Prachai has cited the upturn of petrochemical prices and improved capital market sentiment as the reasons for a big equity-augmentation plan next year. By resorting to raising equity, the bargaining power of the Leopairatana family will be enhanced, though the family will see its holdings diluted to 30 per cent from the current 60 per cent. On Dec 7, some creditors said in a statement that they were frustrated by the recapitalisation proposed by Prachai and accused the embattled CEO of resorting to more tricks to further delay the completion of debt workout and signing of the deal. In the original deal agreed to in February this year, the creditors will become major shareholders through a debt-to-equity swap. International Finance Corp alone will convert its portion of loan into about 20 per cent equity, thus increasing the power of creditors in running the company. TPI executive vice president and group chief financial officer Wachirapunthu Promprasert said that despite the steering committee's approval, the signing of debt restructuring contract is still subject to approval from the company's board and shareholders, so signing the new deal is not possible within this week. TPI has scheduled the meetings for its board on Dec 30, and shareholders in February. To enable the deal to be closed earlier, the company will issue a letter to ensure that there will not be any further changes to the debt reform plan while the creditors will also have to issue a separate letter stating that they endorse the capital increase plan, he said. As per TPI's plan, it will offer the Bt1-billion newly issued shares through private placement, diluting the Leophairatana family's shareholding by half from 60 per cent to 30 per cent. The fund-raising plan is expected to take place in the third quarter of next year. The proceeds will be used to reduce loans, bringing down its debts to US$2.5 billion, in which US$400 million will be converted into equity. For the rest, the first US$500 million will be paid in five years and another US$500 million will be serviced in the following two years. He dismissed the allegation that TPI's recapitalisation was another trick to delay debt workout after nearly two years of talks with creditors. Wachipapunthu said that TPI's new debt reform plan had progressed because of Chatu Mongol's intervention. Meanwhile, a source at Bangkok Bank, one of TPI's major creditors, expressed lack of confidence for the agreement to be sealed soon because Prachai had requested the bank to change a few conditions. The revised plan has also not been submitted to creditors outside the steering committee, the source pointed out. On IFC's threat to file a bankruptcy suit against TPI unless the contract earlier agreed upon is signed within this week, he said: "Prachai has tried to buy time while IFC has compromised over the past two years. If IFC filed a lawsuit against TPI, other creditors including Bangkok Bank will have to follow suit to protect our rights." TPI is one of the country's largest corporate debtors with US$3.2 billion debts owed to 148 foreign and local creditors. Apart from IFC and BBL, Krung Thai Bank, Bank of America, KFW, Korea Exim Bank and US Export-Import Bank are also the major creditors. (The Nation 20-Dec-1999) TRI PETCH ISUZU: Recapitalizes for debt reduction ------------------------------------------------- Tri Petch Isuzu Sales, the local distributor of Isuzu vehicles, yesterday said it had recently completed a 40- fold recapitalisation with funds injected by its parent firm Mitsubishi Corp. On Thursday, Mitsubishi said in a statement from Tokyo that it had boosted its stake in Tri Petch to 98.68 per cent from 45 per cent. According a statement from Tri Petch, its new registered capital of Bt8.3 billion has been paid- up fully since Dec 15. Previously, Thailand's second largest auto company's registered capital was Bt200 million. Tri Petch did not provide details of its new shareholding structure and only said that the stake of individual Thai shareholders, as well Isuzu Motors Ltd (Japan), had decreased as a result of the capital increase. But due to the huge capital injection, it is obvious that the shareholding percentage of other shareholders would be virtually wiped out. Before the recapitalisation, Tri Petch was owned 19 per cent by Isuzu; 31 per cent by four leading Thai families (18 per cent by Boonsoong, 6 per cent by Sarasin, 6 per cent by Sansue and 1 per cent by Krisdakorn); and 5 per cent by BTM Finance. Earlier, Tri Petch said the recapitalisation funds would be used to repay Bt6 billion borrowed from Mitsubishi in October 1998. The statement did not explain why the amount of new capital injection went up by Bt8.1 billion. Tri Petch did not return a call made by The Nation. "This capital increase is mainly aimed at strengthening the equity-ratio balance as well as to reduce the financial- cost burden with strong support from Mitsubishi Corp (Japan). However, the company's management structure remains unchanged with the same board members and business management system," Tri Petch said. (The Nation 18-Dec- 1999) S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter -- Asia Pacific is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Trenton, NJ USA, and Beard Group, Inc., Washington, DC USA. Darryl Henning, Managing Editor, Feliz Ordona and Cristina Pernites, Editors. Copyright 1999. All rights reserved. ISSN: 1520-9482. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. 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