Korea Development Bank will issue a letter of commitment on Friday after reaching agreement with General Motors to offer $750m as part of a $4.35bn cash lifeline to GM’s struggling unit in South Korea.
The non-binding deal by the country’s policy bank came as the US automaker was considering whether to wind down its lossmaking Korean operations as part of global restructuring efforts.
GM Korea has been grappling with acute liquidity shortages as its sales fell sharply after the US automaker’s withdrawal of its Chevrolet brand from Europe.
Under the preliminary deal KDB, which has a 17 per cent stake in GM Korea, will provide $750m in return for GM’s commitment to stay in Korea for at least 10 years and a veto right allowing the bank to block any sale of more than 20 per cent of GM’s Korean assets, KDB said on Friday.
GM, which owns 77 per cent of the Korean operations, will invest $3.6bn and convert a $2.8bn loan to the Korean unit into equity. The US automaker said on Thursday that its first-quarter profits slid due to a $900m restructuring charge for its Korean unit. Its chief financial officer, Chuck Stevens, said its South Korean deal would save $400m-$500m in costs and return the business to profitability.
Seoul’s latest offer of a cash injection came after GM Korea reached an agreement with its labour union earlier this week, winning concessions from workers on pay and bonuses. GM had threatened to file for bankruptcy protection if they failed to reach the wage deal.
KDB said it would sign a binding deal on the financial support for GM Korea after receiving a final report on the company’s finances due early next month. The conditional letter of intent will be issued to GM on Friday, “considering the urgency of GM headquarters’ liquidity support for GM Korea, aggravated management difficulties of suppliers, and smooth due diligence on GM Korea”, KDB said in a statement.
The deal will help GM Korea after posting a net loss of $1.1bn last year, its fourth straight year in the red. Nearly 20 per cent of GM Korea’s 16,000-strong workforce accepted voluntary redundancy after GM said in February that it would close one of its four South Korean plants.
GM’s operations in South Korea were once a key production centre for its compact vehicles but sales have plummeted in recent years, with its South Korean market share falling to below 5 per cent. Domestic rivals Hyundai Motor and its affiliate Kia Motors together control more than 80 per cent of the market.
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