April 26, 2024

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[THE INVESTOR] The drama continued to unfold on March 30  for cash-strapped Kumho Tire, which faced a midnight deadline for its uncooperative labor union to agree to an acquisition by a Chinese investor. Tension notched up in the morning upon a joint press conference led by Deputy Prime Minister Kim Dong-yeon urging the labor union to agree to terms.

“Massive investment is the only way to improve Kumho Tire’s poor financial structure and to establish a foothold to normalize the firm,” said Kim, who is deputy prime minister and finance minister, in a joint statement with chiefs from the Trade Ministry, the SME Ministry, the Financial Services Commission and Korea Development Bank.

“Without agreement between labor and management, the firm will inevitably file for court receivership,” Kim said.

The rare joint press conference came as a sense of desperation lingered over the nation’s No. 2 tiremaker to resolve a monthslong dispute over its fate and begin normalization.

The creditors had set March 30 as the final deadline for the labor union.

Kumho Tire’s creditors had said they would trigger an event of default at midnight barring consensus from the labor union. An event of default is a condition that allows lenders to seize collateral and demand full repayment on a loan when it appears the borrower is unable to repay the loan in the future.

Kumho Tire’s creditors, led by KDB, have been pushing to sell the money-losing tiremaker to China’s Doublestar Tire. The plan, however, has faced strong opposition from Kumho Tire’s union, which believes the foreign firm will take its key technology and later close the firm.

“There must be concerns among the employees on the new management due to the change of major shareholders. But, the government will take safety measures so that the foreign investors will not ‘dine and dash,’” Kim said.

The term “dine and dash” has come to be used in Korea for foreign investors buying local firms at a low price and soon selling them off for quick profit, without consideration of employees, technologies or economic ramifications. US private equity firm Lone Star Funds, which previously bought Korea Exchange Bank, and lately GM, which acquired Daewoo, have faced such criticism.

KDB said the safety measures will require the investor not to sell within five years of the acquisition or to leave unless all the creditors leave.

“If the new investment is made, the creditors will inject a new fund of 200 billion won (US$187 million) and support Kumho Tire to be normalized through extension of debt maturities and a fall in the interest rate,” the finance minister said.

Later in the day, steps quickened among parties of interest, with the union saying it would hold a vote on the sell-off issue.

The union also agreed to meet KDB Chairman Lee Dong-gul and government officials in the afternoon.

The union, meanwhile, stuck to its initial plan to hold a 24-hour strike until Saturday morning in Gwangju, with the participation of 3,500 people.

The maturity date for the company’s 27 billion-won loan is due April 2.

The management of the tiremaker also urged the labor union to agree to the acquisition.

“As creditors operate only on business days, we hope the union would come on board over the weekend for the company to survive,” Kumho Tire President Han Yong-sung said after March 30’s general shareholders meeting in central Seoul.

Kumho Tire CEO Kim Jong-ho headed to Gwangju on March 29 to negotiate and attempt to convince the union.

Kumho Tire’s shares fluctuated throughout the day. It saw a 5 percent drop from March 29’s close in the morning, dipping to a 52-week low of 3,345 won per share. It later surged 30 percent to 4,615 won per share, as of March 30 2:30 p.m.

By Shin Ji-hye and Kim Bo-gyung/The Korea Herald(shinjh@heraldcorp.com) (lisakim425@heraldcorp.com)