South Korea's KDB eyeing deal to inject funds into GM Korea

SEOUL - 17 April 2018: Korea Development Bank (KDB) plans to sign a preliminary deal by April 27 to financially support General Motors’ (GM.N) troubled South Korean unit, provided interim due-diligence on the unit is satisfactory, the chairman of state-run KDB said on Tuesday.

GM proposed in February an investment of $2.8 billion into its loss-making South Korean operations over 10 years, days after announcing a sweeping overhaul. It has asked Seoul to provide its share of the funds for the restructuring.

The U.S. automaker owns 77 percent of its South Korean unit, GM Korea, while KDB owns a 17 percent stake. GM’s main Chinese partner, SAIC Motor Corp (600104.SS), controls the remaining 6.0 percent.

Lee Dong-gull, chairman and CEO of KDB, told Reuters the bank may offer around 500 billion won ($468.42 million), proportional to its 17 percent stake in GM Korea, to help fund GM’s pledged $2.8 billion investment.

This is the first time KDB has raised the possibility of financially backing GM Korea and offered a time-frame for a decision. The bank and South Korean officials have so far been non-committal. But GM Korea’s losses have mounted and the U.S. automaker has raised the prospect of the unit filing for bankruptcy.

“If GM injects equity into the unit, we will inject equity. If GM extends loans to the unit, we will extend loans as well,” he 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.

The KDB chairman said its interim due diligence report on GM Korea is scheduled to be out on Friday, but GM Korea has not so far submitted sufficient documents for South Korea to assess its financial viability.

He said the bank would be able to sign a legally binding deal with the U.S. automaker only 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 covert debt into equity,” a GM Korea spokesman said.

GM’s president told Reuters 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.

Lee said KDB would have no choice but to consider taking “appropriate legal action” should the U.S. automaker opt to liquidate its South Korean unit without consulting the bank.

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 labor cost cuts to save the unit, which in 2017 posted a net loss of $1.1 billion, its fourth straight year in the red.

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 from GM’s exit of its Chevy brand from Europe, which hit its exports to the major market.