An employee working at an assembly line of GM Korea's Bupyeong plant in Incheon, South Korea. — Reuters
SEOUL: Korea Development Bank (KDB) may sign a preliminary agreement by April 27 to financially support General Motors Co’s troubled South Korean unit, provided interim due-diligence on the unit is satisfactory, the chairman of the lender said.
This is the first time KDB has offered a time-frame for a decision on whether to financially back GM Korea, in which the state-run lender has a 17 percent stake. The bank and government officials have so far been non-committal.
GM proposed in February an investment of US$2.8 billion into its money-losing South Korean operations over 10 years, days after announcing a sweeping restructuring. It has asked Seoul to provide a share of the funds for the overhaul.
The US automaker owns 77 percent of GM Korea, while GM’s main Chinese partner, SAIC Motor Corp Ltd, controls the remaining 6 percent.
KDB may offer about 500 billion won (US$468.42 million), proportional to its stake, to help fund GM’s pledged investment in the unit, said KDB chairman and CEO Lee Dong-gull.
GM’s president said last week that common ground must be reached on a long-term restructuring of GM Korea by this Friday, and if there was none, the operation would likely seek bankruptcy protection.
GM shocked South Korea in February with plans to close one local plant and leaving the fate of three others unclear. It is seeking government funding and incentives as well as labour cost cuts to save the unit, which in 2017 posted a net loss of US$1.1 billion, its fourth straight year in the red.
“If GM injects equity into the unit, we will inject equity. If GM extends loans to the unit, we will extend loans as well,” Lee said, adding KDB prefers to take part in a rights offering rather than lending to the unit.
“We may be able to reach a very meaningful agreement by April 27, whether it is a verbal promise or conditional MOU,” he said, referring to a memorandum of understanding.
KDB’s interim due diligence report on GM Korea is scheduled to be out on Friday, but GM Korea has so far not submitted sufficient documents for South Korea to assess its financial viability, Lee added.
He said the bank would be able to sign a legally binding deal with the automaker after a final report is out in late April or early May.
“We are in continued discussions with the KDB and the government with intent to inject new funds and convert debt into equity,” a GM Korea spokesman said.
Lee said KDB would have no choice but to consider taking “appropriate legal action” should the US automaker opt to liquidate its unit without consulting the bank. Lee said GM should offer a long-term commitment to South Korea to get government support.
He said many South Koreans believe GM may eventually leave South Korea when government subsidies dry up, as the US automaker did in Australia and Europe. “They have to show a commitment to remaining as a good corporate citizen,” Lee said.
“What GM really needs to know is that anti-GM sentiment is very strong in South Korea. I told GM that they need to make me feel comfortable before I can make some kind of decisions.”
Lee had a series of meetings with Barry Engle, head of GM’s international operations, who visited South Korea to discuss a restructuring plan with the government and the GM Korea union.
GM Korea was one of GM’s major manufacturing and engineering bases in Asia after its 2002 purchase of failed South Korean car maker Daewoo Motors. But the unit has struggled in recent years since GM pulled its Chevy brand from Europe, hitting exports to GM Korea’s major market.
“The mutual trust hit rock bottom. We have to enhance trust and this will not happen overnight,” Lee said.
GM Korea and its union plan to hold another round of talks on a restructuring deal on Wednesday morning, a union spokesman said. “We are trying to resolve the problem with a dialogue.”
On Tuesday, Hong Young-pyo, a ruling party lawmaker, met GM and union officials and called for the two sides to reach an agreement by April 20 to pave the way for government support. “The time bomb is ticking,” he told reporters.
