Daewoo pockets 92% stake as DCM flounders
It was the smoothest takeover in Indian corporates history. In less than tow years of its arrival in India, Daewoo Corporation has become the undisputed owner of DCM-DAEWOO Motors by acquiring a 92 per cent stake in the company, leaving its Indian Collaborator with almost no say in its affairs and a paltry stake of 1.6 percent.
Daewoo, currently ranked 34th in the Fortune 500 list, came to India when the cash-strapped DCM group was finding it difficult to make ends meet in DCM-Toyota Motors, a company its stared in 1982 with Toyota Motor Corporation of Japan. DCM'S bad days started in 1991 when the yen climbed steeply against the Indian rupee and the automotive industry faced one of its worst recessions with plants operating at less than 20 per cent of their capacities. By 1994, DCM'S losses were over Rs. 50 crore.
Enter Daewoo, DCM-Toyota needed money and Daewoo needed a company to invest in. The result was DCM-Daewoo Motors Ltd (DDML) with a 51 per cent stake for Koreans (see chart) . DCM never really got back on track, leaving Daewoo to make the most of the opportunity. Daewoo top brass, however, say that they were forced to acquire the stake. "Daewoo never had a priority for increasing its stake in the company as it came in with 51 per cent itself. If its has acquired such a commanding stake in DCM-Daewoo, it is just by compulsion," says managing director Shiv Gopal Awasthi. The compulsion, he says, was the result of DCM'S inability to mobilise funds. Chairman Sung Hak Park concurs: "Though the equity structure has undergone a change, in a competitive environment, shareholding patterns do not hold the key to success." That, he feels, comes from a synergy of core strengths, planning and available opportunities.
At every stage, DCM'S inability to mobilise finances resulted in a sale of its stake to Daewoo. According to sources in DCM , the company's plans for funds fell through. While Awasthi is tight-lipped on the reasons for failure, sources say DCM'S main setback was the losses on account of its property at Bara Hindo Rao in Delhi which was valued at over Rs. 500 crore. The land, for which compensation worth over Rs 100 crore was paid to displaced people, did not yield finances. Money taken upfront went in office expenditure; funds, some say, were siphoned into group companies. Daewoo provided most of the funds-its total exposure in the company now exceeds Rs. 3000 crore. This excludes external commercial borrowings worth $345 million guaranteed by it.
The curtains fell on DCM through the Rs 629 crore rights issue which exposed its financial vulnerability and allowed Daewoo to pick up unsubscribed portions of DCM and Toyota Motor. The current equity structure of the venture, now renamed Daewoo Motors (India) Ltd: Daewoo 91.63 percent, DCM 1.65 percent, Toyota Motor corporation 0.44 per cent and public 6.28 per cent. the new board has seven directors from Daewoo, including its marketing wizard S.H. Park as chairman. Also in place is a new vice-chairman S.J. Kim, replacing DCM's Vivek Bharat Ram.
Says Park: "Our focus is unchanged. India will soon be one of the biggest sourcing bases for Daewoo outside Korea." The project, initially planned for China, has begun trial production at Surajpur. As for cars, while Cielo has done rather well, picking up 30 per cent market share in the sub-compact class, on the launch pad are two new models-one is a small car to take on Maruti.
Park believes that although growth in the automotive sector stagnated over the last two years, the market is catching up. His optimism is not without ground. Against a world average of 3 to 4 per cent, the Indian automotive sector grew by 10 to 12 per cent in two years. The stage is quite set for Daewoo's wheels to roll on smoothly.