Praise for Doosan’s sell-offBlueprints for corporate restructuring are emerging. Kumho Asiana Group on Tuesday signed a memorandum of understanding with its creditors to sell back its stake in Daewoo Engineering and Construction if it fails to attract other investors in the next two months.
Eight other large businesses such as Dongbu Group and Hynix Semiconductor have also clinched deals to restructure their finances with a focus on selling off idle properties and subsidiaries. This is good news because these firms have raised tensions in the market due to their apparent cash flow problems.
However, it doesn’t seem desirable that financial companies, mindful of President Lee Myung-bak’s push for corporate restructuring, are adding to the pressure on large companies by mobilizing measures such as an imposition of loan limits. That said, it is a relief to see corporate restructuring is gaining momentum.
The pre-emptive and bold restructuring plans proposed by Doosan are a good example. Voluntarily, rather than due to pressure from creditors, the group has decided to sell its stake in four core subsidiaries and raise 780 billion won ($624 million). By doing so, the corporate giant has successfully hushed market fears over its liquidity shortage. Fears arose after the company bought Bobcat’s construction vehicle division in the United States.
The market response has been upbeat, as many can imagine. Corporate restructuring of conglomerates is a measure to remove the more worrisome elements from the Korean economy. In this respect, Doosan’s move is an unprecedented example.
It’s safe to say a sense of relief is spreading across the globe as countries are providing sufficient liquidity to resolve the financial downturn. Some firms short of capital are confident they will normalize once they pass through this period. However, comprehensive corporate restructuring should be launched today.
It is true that the government and financial firms have been equally reluctant to execute plans for restructuring conglomerates. But now that the worst of the economic chaos appears to have passed, delaying corporate restructuring is no longer justified. We need to take into account that the bad debt of lenders and non-bank financial institutions jumped by 50.5 percent, or 10.4 trillion won, in a matter of six months to 31 trillion won, as of late March.
Cutting off the weaker parts of the economy is the best prevention against a recurrence of the economic crisis last year. We shouldn’t repeat the mistake of failing to restructure as we did during the currency crisis in the late 1990s.
The worldwide economy hasn’t yet rebounded and international oil prices are shooting up. It is unclear whether another round of financial turmoil will emerge. Companies should avoid losing everything by attempting to keep everything, which is why Doosan stands out.