Size of Writeoff Stalemates Talks on $7B of Daewoo Debt

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Talks between international banks and Daewoo Corp. in Hong Kong on $6.7 billion of debts hit a stalemate Thursday, raising the likelihood the South Korean conglomerate will be forced into bankruptcy.

Banking sources said that there appeared to be little chance banks would accept the 63.5% writedown the South Korean government has proposed instead of the 45% banks have reportedly said they are prepared to accept.

"The Korean government is playing hardball," said a banking source in New York. "And foreign creditors are saying that they don't have to accept anything and will shut down Daewoo and attach the assets."

Daewoo, one of South Korea's largest manufacturing conglomerates, expanded rapidly into the United States and other foreign markets during the last decade. It has a combined $78 billion of debt held by local and foreign banks and accounts for about 10% of South Korea's gross domestic product. A bankruptcy would be a major blow to the country's economy as it struggles to recover from a devastating two-year-old economic crisis.

Chase Manhattan Corp., London-based HSBC Holdings PLC, and Bank of Tokyo-Mitsubishi Ltd. are co-chairmen of discussions between the South Korean government and nearly 200 foreign banks with exposure to Daewoo. Chase, Citigroup Inc., Dai-Ichi Kangyo Bank Ltd., National Australia Bank, Arab Bank PLC, and ABN Amro Holding are among the major lenders to the industrial group.

"It's a total stalemate," said Gary Kleiman, president of Kleiman International Inc. …