By Sandra Sugawara
Washington Post Foreign Service
Sunday, May 24, 1998; Page H01

TOKYO—The Asian financial crisis is producing global capitalism's version of a fire sale, with U.S. and European investors rushing to acquire Asian companies at bargain prices. And to the surprise of many observers, many Asian owners are willing to sell.

Asia's economic crisis is forcing the region to shed decades of protectionism. The region's companies need hundreds of billions of dollars to recover, and outsiders are the only source. Even in Japan, local banks and governments can no longer afford massive bailouts.

So across Asia -- from ethnic Chinese tycoons in Southeast Asia to South Korean chaebol leaders to Japanese keiretsu executives -- the mighty and elite are out peddling chunks of their companies to foreigners.

In Japan, for example, the threat of foreign acquisitions has traditionally triggered fearful predictions in the news media: massive layoffs, the firing of longtime suppliers, the disruption of the Japanese way of life. But not anymore.

A case in point is Nissan Diesel Motor Co., which is in talks with Germany's Daimler-Benz AG. Instead of scaremonger stories in the press, most of the focus has been on Nissan's desperate financial straits and its need for new capital.

Minoru Tanaka, executive director of a small Nissan supplier, insists he is not panicked about a possible Daimler-Benz acquisition.

With Nissan's faltering car sales, Tanaka's company needs new customers for its filters. "We are hoping that maybe we can sell filters to Daimler-Benz," Tanaka says. He jokingly adds: "As a Nissan keiretsu company, we were required to drive Nissans. If Daimler-Benz takes over Nissan Diesel, now maybe I can finally drive a Mercedes."

Colin Stuart, a Tokyo-based director in the mergers and acquisitions department of KPMG Corporate Finance, said: "Before, a profitable Japanese company could think of absolutely no reason why it should sell any part of its business to a foreigner. Now, these companies are not profitable. Banks aren't lending them money. They've got big problems, and suddenly selling to foreigners isn't such a bad option.

"I don't think Nissan would ever have contemplated selling a part of its grouping to a foreign company if didn't have these financial problems."

The bargain hunt by foreign investors has touched most of the countries that have been pounded by the Asian crisis -- including Japan, South Korea and Thailand. Foreign investors have remained wary of Indonesia because of political instability. But elsewhere, foreign companies are finding a welcome mat, lower sticker prices and a currency devaluation to sweeten the pot.

They are also finding governments eager to win their investments. South Korea, in particular, has been eliminating or reducing a number of restrictions on foreign investments in recent months.

The Big Spenders

U.S. companies shopping for Asian bargains include DuPont Co., which is investing an extra $1 billion in Asia "to snap up factories and property at a discount," according to Bloomberg News. Another big investor is General Electric Co., which Bloomberg says plans to spend $30 billion to $40 billion in Asia during the next four years. Bloomberg also cites Coca-Cola Co., Eastman Kodak Co. and General Motors Corp. as major Asian investors.

"The level of activity is increasing dramatically. There's no question that the level of interest in this region is extraordinarily high," said Timothy Dattels, Hong Kong-based managing director of Goldman Sachs & Co.'s investment banking division in Asia.

The frenzy has been heightened by the recent announcement by Daimler-Benz that it would acquire Chrysler Corp. "It puts pressure on people operating in global environments to think creatively and boldly," Dattels said.

Some foreign and Asian businessmen say the flood of newcomers could change how business is conducted in Asia, where success in the past was often dependent on political cronyism and back-room deals. That could create a more efficient economic system, said one Thai businessman.

But many Asian executives fear they may be forced to sell off the family jewels at bargain rates simply to raise cash. Already some deals have been concluded that would have been impossible before the Asian economic meltdown, say experts.

GE Capital earlier this year did a "virtual takeover" (as one Japanese authority dubbed it) of Toho Mutual Life Insurance. GE got Toho's business operations, its sales staff and all its new business, but not Toho's existing policies, with their unprofitably high guaranteed payments.

"After the Toho deal was announced, a number of foreign financial institutions were going around town saying: 'We want one of those, too. Why can't you find us one of those, Colin?' " Stuart said. "It certainly looks sweet -- we'll take all your best things, but you keep all the nasty stuff."

There's a lot of price haggling ahead. "A lot of deals still haven't closed. A lot of deals are still being worked on. There is still often a gap between sellers' expectations and the views of buyers," said Gary Stead, Merrill Lynch & Co.'s Singapore-based managing director in charge of Asian mergers and acquisitions.

Slow Deals

Investment bankers also say many deals are taking longer than expected because of the murky accounting and huge debt levels in Asian companies. This is particularly a problem in South Korea, yet interest there remains strong.

"I would say Korea at this point is where the level of activity is the greatest in the region," Stead said. That's because top Korean officials are willing to shake up the country's power structure to deal with its economic problems.

For instance, South Korea has ordered its large conglomerates, or chaebols, to reduce their huge debt levels. The result is that major chaebols have announced plans to raise money by selling off subsidiaries or taking in large foreign investors. They have already sold companies to Procter & Gamble Co., Coca-Cola and German chemical company BASF AG, among others. Korea's Asiana Airlines has asked the government for permission to sell half of its shares to a foreign airline.

Daewoo Group Chairman Kim Woo Choong told Reuters he is in discussions with General Motors to sell a 35 percent to 50 percent stake in Daewoo Motor Co., although many analysts wonder why GM would want to be burdened with Daewoo's billions of dollars in debt. Hanwha, another major chaebol, has put its oil refinery up for sale.

South Korea has moved quickly to eliminate or reduce many rules erected to keep out foreign investors. The government recently announced it will lift restrictions on foreign investments in 11 industries, including merchant banking, land development and petroleum refinement. The government said it plans to raise about $10 billion by selling state-owned corporations in the next two years, and officials insist they will welcome foreign investments.

In Thailand, officials have also loosened rules on foreign ownership and wooed foreign investors such as George Soros, the American hedge-fund manager. Last year, Soros was accused of sabotaging Thailand's economy, but this year his decisions to invest in a financially troubled Thai steel mill and Thai electronics components company were hailed.

Some major Thai banks have been on the auction block. Citibank considered buying First Bangkok City Bank but decided against the deal after getting a look at the books. Singapore DBS Bank bought Thai Sri Danu, Thailand's 12th-largest bank, and ABN Amro of the Netherlands took a 75 percent stake in the Bank of Asia. Two of Thailand's largest banks, Bangkok Bank and Thai Farmers, are among the many other banks seeking foreign capital.

Japan, which has Asia's strongest economy, has also been one of the most resistant to foreign investment. But that's starting to change. Most of the government-imposed regulatory barriers have come down in recent years, Stuart said. "The major problem for M&A [mergers and acquisitions] here is cultural -- people's basic resistance to selling to a foreigner."

But Japan's financial woes have weakened that resistance. Financially ailing retailer Daiei sold its consumer financial subsidiary to a financing subsidiary of Ford. And Britain's Bass PLC purchased Inter-Continental Hotels & Resorts from the troubled Saison group, a Japanese retail conglomerate.

Merrill Lynch got a big break when Yamaichi Securities Co., Japan's fourth-largest brokerage, went bust last November. Merrill Lynch spent up to $300 million taking over more than 30 branch offices and 2,000 employees of Yamaichi.

Even the Life Insurance Association of Japan, an industry group often accused of working to keep foreigners out of Japan's insurance market, may be selling out to foreigners. American International Group (AIG) has offered to take over Aoba Life Insurance, which was created last June by 43 Japanese life insurance companies to handle the policies left behind by the collapsed Nissan Mutual Life Insurance Co.

The Life Insurance Association faced two choices -- get stuck with supporting the policies of the collapsed company or sell the operation to AIG and risk facing a large, aggressive competitor. Japanese media reports say that the insurance companies are generally leaning toward unloading the loans. If the price is right.