THE END OF THE NEXIA? HYUNDAI LOOKING TO INVEST IN

C O N F I D E N T I A L TASHKENT 000611

SIPDIS

SIPDIS

DEPT FOR SCA/CEN

E.O. 12958: DECL: 03/28/2016
TAGS: PGOV PREL UZ ZK
SUBJECT: THE END OF THE NEXIA? HYUNDAI LOOKING TO INVEST IN
UZDAEWOO

Classified By: CLASSIFIED BY AMB. JON R. PURNELL FOR REASONS 1.4 (B, D)
.


1. (C) Summary: A key agenda item for President Islam
Karimov,s March 28 meetings in Korea will likely be a
possible Hyundai investment into UzDaewoo. According to
UzDaewoo senior management, they were informed just prior to
Karimov,s departure that Hyundai would likely purchase up to
half of the company. The GOU purchased 100 percent of the
former Korean-Uzbek joint venture in 2005, when GM decided
not to buy Uzbek operations as part of its overall takeover
of Daewoo. UzDaewoo management and local parts producers are
worried how a Hyundai purchase would affect their businesses.
In a separate, but likely related move, the Central Bank has
severely limited UzDaewoo,s access to hard currency, making
it nearly impossible for the company to import the necessary
parts to meet orders. If the UzDaewoo factory has to shut
down or decrease operations, due to either a new owner or
lack of imported parts, it would negatively impact the
already fragile Andijon economy. End summary.


2. (C) An UzDaewoo representative told Post that the GOU
intends to sell half the company to Korean-owned Hyundai in
the near future. The representative said that the current
Uzbek Ambassador to South Korea, Vitaly Fen (an ethnic
Korean),had already broached the idea in Seoul per President
Karimov,s request. Despite ongoing negotiations, the GOU
has kept a possible Hyundai investment very quite, only
involving the highest levels of government. In fact,
according to UzDaewoo representatives, the company,s
management only learned of the change in ownership structure
just prior to Karimov,s pending departure for Korea. The
potential sale of 49 percent of the automotive company will
likely be a major topic of conversation during Karimov,s
March 28 visit.


3. (C) In September 2005, the GOU became 100 percent owner
of UzDaewoo when it bought out Daewoo Korea. Earlier in 2005,
Daewoo Korea was purchased out of bankruptcy by General
Motors. While General Motors continued to engage with
UzDaewoo, supplying car parts from its Korean operations, the
company decided against purchasing Daewoo Korea,s interest
in the factory, which is located in Andijon.


4. (C) According to our contact, the news of a possible
Hyundai investment is making everyone, including top
management, very nervous. Management is worried they might
be replaced by Hyundai representatives. Local parts
producers are worried that when Hyundai changes UzDaewoo's
models to be in line with Hyundai brands, the parts they
produce will no longer be compatible.


5. (C) Our contact also noted that the Central Bank has
limited UzDaewoo,s currency exchange quota to USD 100,000
for 2006. This quota will significantly limit the company,s
ability to import the necessary parts to produce cars. Once
the quota is filled, UzDaewoo will be forced to stop all
imports from international suppliers, including Korean
GM-Daewoo and German-owned Continental. (Note: The majority
of parts that go into UzDaewoo cars are imported, as local
factories do not have the technology necessary to produce
them. End note.) Continental told our contact that, due to
this reality, it cannot extend contracts with UzDaewoo
because it cannot be assured of payment. Local car dealers
cannot accept orders for new cars because they cannot
guarantee that the factory will be able to supply the
automobiles to the customer.


6. (C) Comment: UzDaewoo is a pillar of the economy in
Andijon and the province,s largest semi-private employer.
If the company is unable to get parts and decreases
production, due to either a change in ownership or the
inability to purchase parts, it will have a direct negative
impact on an already troubled region.
PURNELL