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December 19, 2006 12:02 am

Investors laud Pantech debt rescheduling plan

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South Korean investors on Monday reacted positively to news that creditors of mobile phone maker Pantech had accepted a plan to reschedule more than $1.6bn in debt.

Pantech, the world's seventh-largest handset maker and Korea’s third largest, has invested heavily in research and development and marketing to promote its brand in overseas markets and crack the global top five. Pantech and affiliate Pantech & Curitel racked up Won74bn in operating losses in the first nine months of 2006.

A dozen local banks, led by state-run Korea Development Bank, agreed late on Friday to freeze payment of interest and principal due on Won1,470bn ($1.6bn) in debt owed by the handset maker for up to three months in exchange for control over the company’s restructuring.

The news sent Pantech shares up as much as 12.4 per cent and P&C shares surged 23 per cent on Monday though both closed with smaller gains.

Pantech started as a contract manufacturer for global brands such as Motorola and has expanded its domestic market share to about 20 per cent, attracting tech-savvy Korean customers with its leading-edge mobile phones. It still makes mobile phones for Nokia and supplies handsets to global operators such as Cingular Wireless of the US and Japan’s KDDI.

But it has been struggling to compete against bigger cross-town rivals such as Samsung Electronics and LG Electronics and faced liquidity problems after it launched its own global brand two years ago and expanded aggressively in emerging markets including south-east Asia, eastern Europe and South America.

“It is not just a cash flow problem. The company is less cost-competitive than its bigger rivals. Its revival now hinges on how much restructuring can be done,” said a local analyst.

He added that Pantech might be forced to scale down R&D spending and downsize overseas business to cut costs further.

It has already laid off one-third of its workforce this year.

South Korean handset makers have seen their margins and market share fall this year amid intense competition as overseas rivals aggressively expand in fast-growing emerging markets with lower-priced phones. VK Corp, a smaller South Korean handset maker, was placed under court receivership in July after going bankrupt.

■ LG Electronics named Nam Yong as its new chief executive to replace Kim Ssang-su, after the company reported an 86 per cent drop in net profit in the third quarter. Mr Nam, who is president of LG Corp, LG’s holding company, will begin his new role as the CEO of LG Electronics on January 1 next year. Mr Kim will move to LG Corp.

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