S. Korea Bankruptcy Panel Takes Control of Kia

Kia Group, one of South Korea’s major industrial conglomerates and auto makers, was placed under control of a bankruptcy prevention committee Tuesday by bankers worried about the company’s debt of nearly $11 billion.

The action, in which the banks declared Kia a “bankruptcy-delayed” company, follows a string of bankruptcies earlier this year by other South Korean conglomerates, or chaebol, that have left the nation’s banking industry reeling.

The near-bankruptcy will have “no immediate impact on the operation of Kia in the United States,” said Gino Effler, a spokesman for Irvine-based Kia Motors America Inc., the company’s North American import and distribution arm.

The supply of Kia vehicles to the U.S. and Canada won’t be interrupted and “we will continue to expand our dealer network . . . and to sell cars and service customers’ needs,” Effler said.

Kia Motors is one of the smallest car companies operating in the U.S., with 260 dealers and sales of about 38,000 cars and sport-utility vehicles per year. The company has about 200 employees, most of them in Irvine and Fullerton.

Kia is the first of Korea’s 10 largest chaebol to be placed under the banking industry’s protection, but more are likely to follow as creditors rush to collect loans, said Hwang Kyu Chul, a fund manager at Korea Investment Trust Co., which oversees $3.9 billion in equities.

The move could start a shake-up in Korea’s ailing car industry, which has been plagued by excess capacity and a saturated domestic market.

The banks placed Kia’s 18 operating units, including publicly traded Kia Motors Corp. and Kia Steel Co., in the unusual near-bankrupt status to exert tight control over Kia’s credit lines in coming months, analysts said.

Kia companies will continue receiving operating funds for the next two months while the banks evaluate their financial health. Terms of the loan package are to be worked out at a July 30 meeting between Kia and banking officials.

Kia executives in Seoul said they have not sought bankruptcy protection for the $20-billion company and that the banks’ actions will not affect daily operations.

Analysts in South Korea agreed. “This will not prevent them from dealing with customers or paying creditors,” said Hun Sok Kang, a Seoul-based industrial analyst with ING Barings.

But the move could result in a takeover of Kia as part of a broader shake-up in the auto industry.

Samsung Group, Korea’s second-largest industrial conglomerate, has long sought to expand its budding auto business by possibly acquiring existing car makers. Kia has opposed a takeover by Samsung, but its financial difficulties “could advance Kia’s takeover by one or two years,” said Lim Choon Soo, head of research at Goldman Sachs’ Seoul office. “With its vast facilities, Kia will be popular among potential buyers.”

Kia, South Korea’s second-largest car maker behind Hyundai Motor Corp., is not losing money, Kang said. The problems are in other operations, including Kia Steel and a second venture, Asian Motors Inc.

“We neither wanted nor requested” to be protected, Kia director Roh Suh Ho told reporters. Kia will continue its efforts to sell its real estate and other assets to improve its finances, he said.

The Kia rescue effort is the third this year involving chaebol, following similar support given to the smaller Jinro and Dainong groups. Korean creditors agreed to freeze debt payments from leading groups after Hanbo Group and Sammi Group collapsed earlier this year under a combined $8.2-billion debt. Only Dainong, a textile company, is not among Korea’s top 30 chaebol.

Kwon Woo Ha, an executive of Korea First Bank, Kia Group’s prime creditor, said the decision to bail out Kia was made without a request from the company because Kia’s failure would bring down the bank.

Analysts say the Kia rescue could aggravate problems at other financial institutions, which have loaned Kia Group about $5 billion.

Times wire services also contributed to this report.