Daewoo Motors Engine, Gear-Box Spinoffs Delayed

Daewoo Motors India's (DMIL) plan to hive off its loss-making engine and gear-box units into separate companies has been delayed for the time being. The company is now looking for a merchant banker to help it through the business restructuring process, which will lay the ground for a financial recast.

DMIL had earlier set a target of hiving off the two units by the end of this month. The two units together contribute to over 85 per cent of the company's losses.

Y C Kim, chief executive officer, said: "The basic purpose of spinning off the engine and gear-box plants is to either sell them off or find another promoter to run the factory together. That (exploration) activity is going on right now. The actual spin-off will be delayed a little bit. We are in the process of appointing an outside professional. No matter what happens, we will complete the business and financial restructuring by the end of March 2002."

The car maker is waiting to complete the spin-off of the two units before initiating talks with both domestic and Korean financial institutions (FIs) for converting debt into equity, rescheduling interest payments and restructuring the principal amount.

"We have still not initiated talks with either Indian FIs or Korean creditors. We will finish the spin-off first, then go in for financial restructuring. We have already achieved Rs 58 crore cost-cutting in the previous fiscal as per our cost restructuring exercise. During the current fiscal, our target of cost cutting is Rs 85 crore. This is 19 per cent of our total manageable costs," Kim said.

Meanwhile, DMIL is planning to set up spares and parts stockists in all major metros, in order to reassure customers about the easy availability of parts and to cut down the customer's waiting period. Against a monthly requirement of Rs 4 crore worth of spare parts, the company has Rs 29 crore worth of parts lying at its factory, Kim said.

...expects sales to surge

DMIL expects its sales to improve, as its Korean parent has registered a $5.1 million operating profit in April, 2001, for the first time in 34 months. The local arm is hopeful that this will quell concerns about Daewoo Motors Korea's operations, and result in a surge in sales.

Y C Kim, CEO, DMIL, said: "During the first ten months of the calendar year 2000, Matiz sales were averaging around 4,000 units per month, which was reduced drastically after Daewoo Motors Korea declared bankruptcy in November. Our parent firm has achieved 75.2 per cent of the annual cost reduction target of $900 million during the first four months itself. From July this year, the parent company is likely to be self-sufficient as far as working capital requirements are concerned."

Sales of Daewoo Motors Korea in April, 2001, increased by 14 per cent over March, 2001, sales, which in turn was a 35 per cent increase over February, 2001, sales, Kim said. It is now expected that General Motors will submit its proposals to the Korean government latest by June 15.