The plan to purchase loans for cash would apply to $4.84 billion in non-secured loans to four Daewoo affiliates out of Daewoo's total foreign debts of $6.7 billion, South Korea's Corporate Restructuring Coordination Committee (CRCC) said.

If all debt is tendered, the purchase price on an overall basis will be the equivalent of between 39 to 40 per cent of face value," the CRCC said.Advisers representing Daewoo Group's local creditors had sought agreements to buy debts from foreign creditors exposed to Daewoo Corp, Daewoo Electronics, Daewoo Motor and Daewoo Heavy Industries.

The heavily-indebted Daewoo group and a steering committee composed of nine foreign representative banks reached the deal in Hong Kong in the early hours of Saturday morning.

The steering committee offered last week to accept a collectionrate of around 45 per cent on Daewoo's foreign debt. Daewoo had earlier offered a 36.5 per cent of collection rate. Analysts and officials said the plan would give South Korea's financial markets a major boost of confidence and could help bring down interest rates.

"If this development didn't take place, it would be negative (for Korea)", said Oh Ho Keun, chairman of the CRCC. The deal "would probably give a psychological boost to the financial markets and confidence will be restored to a substantial extent. It will probably stablise the capital markets as well. It's generally a positive development."

The CRCC said the plan would be forwarded to Daewoo's approximately 200 foreign creditors by mid-February and they would be required to respond by mid-March.

Foreign creditors controlling more than 90 per cent of the principal must agree to the debt buy-out plan. A CRCC official said the nine foreign banks in the steering committee accounted for a substantial portion of foreign loans to Daewoo, but herefused to give the figure.

"The deal is good for the government, it's good for Daewoo, it's good for the banks. I think it's a fair agreement," said Mark Walker of Cleary, Gottlieb, Steen and Hamilton, a New York-based legal adviser to Daewoo.

"I'm pretty confident that we will get the 90 per cent target", said Barry Ridings, New York-based managing director, Lazard Freres & Co, which has been advising Daewoo.