WRONG MAN FOR THE JOB?

Kim moved, but he hasn't quit. Two weeks ago, it looked like Daewoo's creditors had succeeded in removing the man they saw as largely responsible for running heavily indebted Daewoo into the ground. Bankers were also fed up with the company's unfulfilled promises to restructure. At stake was more than just 100,000 Daewoo jobs in South Korea and more than that overseas. The credibility of President Kim Dae Jung's entire reform efforts in the eyes of potential foreign investors also seemed to depend on the company's fate.

As For The Others...

With Daewoo teetering on the edge of insolvency, the question is whether any other of South Korea's big chaebol have similar problems: HYUNDAI has slightly more debt than Daewoo: $50 billion. The difference is that it has assets that buyers want. It has divested itself of 21 smaller units and plans to unload Hyundai Oil and 12 others. SAMSUNG has already achieved a debt-equity ratio of 2-to-1, meeting the government's target for the end of 1999. It expects to eliminate cross-guarantees of loans within the group by October. It is developing exit strategies from all businesses except electronics and finance. LG recently transferred LG Semicon to Hyundai and sold half of LG LCD to Philips for $1.6 billion. SK sold nearly $800 million worth of assets this year and raised an additional $1.6 billion in fresh capital. It has divested itself of six companies and plans to unload four more.

Then the "Chairman," as the 62-year-old Kim is sometimes known, made a comeback. A senior official at the Financial Supervisory Commission, which is leading the nation's restructuring effort, says it became clear that no one other than Kim understood Daewoo's problems and could effect a makeover. Daewoo is a huge and complex company with $50 billion in sales last year and 540 units worldwide in a wide array of fields from building ships and cars to selling insurance and property. "The bankers were too inexperienced and lacked business knowledge to undertake perhaps the world's largest corporate restructuring challenge," says one government official. Adds another: "Nobody seems to know anything about Daewoo except Chairman Kim." Reaction to the decision to bring Kim back was generally negative.

Blame Kim's management style for Daewoo's opaqueness, according to those who know him and have worked with him. Few of the former and current Daewoo staffers contacted by Asiaweek were willing to talk for the record; Kim is famously prickly about criticism. But their stories reveal some common themes: Kim loves to take risks. He is almost compulsively hands-on in running his company. And he is sometimes meticulous in his attention to detail, but at other times has no time for facts. Kim himself refused requests to talk with Asiaweek.

Kim started Daewoo in 1967 with two friends and a business partner. Soon, he bought sole control. His first big idea: mass produce shirts for American retailers like Sears and Montgomery Ward. After struggling initially with poor quality, he eventually imported the same equipment used by other successful suppliers to the U.S. giants and found success. In the 1970s, Kim traveled the world looking for business opportunities. He was applauded by then-President Park Chung Hee for boosting South Korea, and the strong government connection helped Daewoo get whatever bank loans or export credits it wanted. During this time, Kim developed two key business strategies that would later prove ruinous: He loved to attempt turnarounds of troubled companies. And he liked to borrow to achieve his goals.

Perhaps the purchase of bankrupt companies with borrowed money satisfied Kim's penchant for risk. He frequently made fiery speeches to employees about the business necessity of taking chances. It is said that Kim once discovered that a junior employee had spent all his travel-expense money gambling during a business trip to Las Vegas. Kim gave the man money to go back to the casino and try again. This time, the employee won. He later was promoted.

The financial Crisis that hit Asia in 1997 proved to be especially devastating for Daewoo, which had piled up debt to fund expansion in risky markets and industries - often in foreign currencies that gained against the Korean won, making debt service more expensive. But problems were developing at Daewoo even before the Crisis. In the first 25 years of the company's life, Kim benefited from a senior management team that had grown and developed with him. Many were Kim's friends from high school and college days, and they knew the Chairman well enough to tell him when his grandiose ideas and plans were garbage. But in the mid-1990s, Kim decided that he wanted to infuse Daewoo with new blood, and he began getting rid of the old guard. The problem, say past and present employees, was that the new senior managers weren't brave enough to tell Kim he was wrong. Consequently, decisions like the one in 1998 to hire college students as Daewoo car salesmen in the U.S. were made. Kim reasoned that students needed money and could sell cars while working for little. But they couldn't sell, and the plan was scrapped.

The absence of a counterweight to Kim's attempts to borrow as a way to keep Daewoo afloat nearly did in the company earlier this year. In 1998, Daewoo added almost $14 billion in debt by borrowing mostly short-term money as working capital - the bulk of which went to meet an estimated $6 billion in annual debt service. "Everybody knew that [Kim] had a problem," says a banker familiar with the situation, "but nobody had the guts to tell him."

Meanwhile, Kim's legendary connections and savvy seemed to fail. One former Daewoo top executive says the Chairman's political acumen became especially weak in dealing with President Kim. For example, the Chairman seemed to completely ignore Kim Dae Jung's call for Daewoo to take over Samsung's automobile operations in Pusan, which was one of the Big Deals designed by the government to rationalize the chaebol. Pusan was a weak spot that the president wanted to improve by keeping the Samsung plant open. But Kim Woo Choong stalled until the Samsung Big Deal evaporated. The Pusan plant closed late last year. "Had [Kim Woo Choong] camped himself in the plant [as he used to do to turn around bankrupt companies] and kept producing Samsung cars, President Kim definitely would have done his best to keep Daewoo floating," says the former executive.

Now Chairman Kim will have to save Daewoo without the president's support. It would not be easy even under the best circumstances. Analysts say Daewoo's assets are probably worth only a fraction of their book value. Rhee Namuh, head of research for Samsung Securities, says he expects Daewoo can cover only about half of its $47 billion debt, which leaves an enormous hole to be filled by banks or, more probably, the government. Seoul could try to sell Daewoo in pieces to foreigners in hopes that new management could turn around units and keep jobs, but no foreign buyer will want to be burdened by the debt. Again, that means asking banks to take a major haircut. Daewoo's biggest creditor is Korea First, which has been slated for sale to Newbridge Capital of the U.S. for the last eight months. Negotiations between Newbridge and the government have been bogged down over the amount of bad debt held by Korea First and who will absorb it. In recent days, Daewoo's major creditors have expressed doubt about whether Kim Woo Choong is a serious reformer and have rejected a preliminary plan produced by the company. Skepticism has also hurt Hanvit Bank, one of the nation's largest financial institutions, which was recently forced to sell securities at a deeply discounted price to foreign investors because of Kim and Daewoo.

Sympathy for Kim is wide within Daewoo, where employees appreciate his legendary work ethic. Kim, who normally prefers a bowl of noodles to gourmet dining, is now a frequent visitor to the employee dining hall. Employees who once were motivated to join Daewoo by Kim's drive and charisma now commiserate about what went wrong. "We thought we were invincible," says Lee Jung Nam, a 32-year-old employee of the head office. "Like Chairman Kim, I have now resumed smoking because I'm depressed." Many workers wonder what happened. The Chairman could probably tell them about how he took risks because he wanted to build a strong company for the future. He could admit that he pursued a flawed strategy. He might - but he probably won't.

WASHINGTON
U.S. secretary of state says China should be 'tolerant'

MANILA
Philippine government denies Estrada's claim to presidency

ALLAHABAD
Faith, madness, magic mix at sacred Hindu festival

COLOMBO
Land mine explosion kills 11 Sri Lankan soldiers

TOKYO
Japan claims StarLink found in U.S. corn sample

BANGKOK
Thai party announces first coalition partner

---

TIME:

COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state

---

ASIAWEEK:

COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel ì at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness

---

Launch CNN's Desktop Ticker and get the latest news, delivered right on your desktop!

Today on CNN