International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CASE STUDY 7.1

Daewoo's Unorthodox Funding Strategy

This case study accompanies Chapter 7 of International Corporate Finance.

Daewoo Corporation, headquartered in Seoul, South Korea, was established in 1967 by an entrepreneur named Woo Choog Kim and soon became one of the largest corporations in all of South Korea. Its 1987 unconsolidated annual sales amounted to some US$5.6 billion, which made Daewoo the number four chaebol in South Korea. Daewoo was mainly involved in three lines of activities: international trading, domestic and overseas construction, and textile goods manufacturing, with 31 domestic and 16 foreign subsidiaries. It was the third-largest exporter in terms of volume among South Korea's seven general trading companies, was the number two general contractor, and was rapidly diversifying into industrial and consumer durables. As for its major rivals, the only check on Daewoo's explosive growth was its access to capital.

As the financing arm of Daewoo's International Trading division, the main responsibilities of the Foreign Exchange and Trade Finance department were trade financing, treasury, and management of foreign exchange risk. At a time when the Bank of Korea was attempting to cool off the economy through a tight monetary policy, the department was under mandate to raise as much money as possible to help solve Daewoo's perennial capital shortage.

Mr. Y. D. Ahn had become the general manager of the Foreign Exchange and Trade Finance department in 1985 after ...