Daewoo Motor Sells 26% Stake To Fund Expansion

Artec Ltd has become the third largest shareholder in South Korea's number three carmaker, Daewoo Motor managing director Choi Il-sun said in an interview.

The money would partly fund a new plant under construction in the southern Korean city of Kunsan that would raise domestic production capacity by 300,000 to more than one million.

We need investors to subsidise huge investment plans, including 900 billion won ($1.1 billion) for the Kunsan plant and development of new car models, Choi said.

Having foreign investors also complies with our globalisation programme.

Daewoo, faced with a sluggish domestic car market, is betting its future on fast-growing emerging markets in Eastern Europe and Asia.

 

Analysts say it needs to keep the cash rolling in to maintain the momentum of its investment binge that could make or break the company.

Daewoo is globalising, and they need overseas finance, said Jon Chong-hwa, an auto sector analyst with Hanuri-Salomon Securities in Seoul.

Referring to Daewoo's heavy investments in emerging markets, he said: If that goes down, then Daewoo goes down too. But I'm not that negative.

Daewoo initially said Artec was a subsidiary of Union Bank of Switzerland (UBS), but later corrected the statement to make clear UBS simply helped Artec raise the money.

UBS acted as an adviser to Daewoo Motor. Artec is an independent company and UBS does not have any shareholding, a statement issued by UBS said.

Artec is registered in the Malaysian tax haven of Labuan.

Daewoo last year took stakes in Polish car makers Fabryka Samochodow Osobowych and Fabryka Samochodow Lublinie.

It has major plants in the Czech Republic, Romania, India and Uzbekistan and smaller facilities in the Philippines, Vietnam, Indonesia and Iran.

Daewoo officials said in June the company would invest $6 billion overseas in the next two to three years.

It plans a big push into Latin America.

Choi said Artec did not gain management rights.

Its investors hoped to realise capital gains from their 18.45 million shares when the company goes public.

Daewoo has said it plans an initial public offering in 1998 or 1999.

The purchase by Artec is interest-free. As long as our management rights are not disturbed, we are open to such deals, he said. Artec approached Daewoo in May and the deal was completed in June, he added.

Daewoo Motor has prospered since it severed an unhappy 15-year marriage with U.S. auto giant General Motors in 1993.

The company turned a profit in 1995 and was also profitable in the first half of this year.

Daewoo Motor's paid-in capital has been enlarged to 354.67 billion won from 262.44 billion following the Artec purchase.

Daewoo Corp's 50 per cent stake in the Daewoo Motors has now been reduced to 37 per cent, but it is still the largest shareholder. Daewoo Electronics is the second largest shareholder with a 28.5 per cent stake, down from 38.6 per cent before Artec purchase.