Psst! Want A Nice Piece Of A Chaebol?
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 in 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 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 sales 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 chaebol 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 businesses 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 Boveri 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 $500 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, Kazakhtelekom, for about $150 million.
The sales are keeping Korean companies from moving up the manufacturing chain. Synthetic-fiber maker Kohap Ltd., Korea's 20th-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 tapemaker, 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 Chung Young Taik, Kohap's director for planning. But the company needs the money.
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 Seoul. 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 $30.5 million. Ssangyong also has unloaded its Korean paper operation to Procter & Gamble Co. for $85 million. 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.