April 26, 2024

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[THE INVESTOR] General Motors and the state-run Korea Development Bank, the two biggest shareholders the carmaker’s local unit, are set to sign an initial funding agreement this week to help it stay afloat, they said on April 24.

The KDB is expected to sign a preliminary agreement with GM by Friday to extend a fresh loan worth 500 billion won (US$464 million) to GM Korea, a KDB official was quoted as saying. GM is also expected to sign on to the funding deal with the KDB later this week.

The 500 billion won is equivalent to 17 percent of $2.8 billion worth of investment GM said it will provide its South Korean till 2027. The U.S. carmaker said the investment is aimed at maintaining a combined annual output capacity of 500,000 vehicles from its three car assembly plants in Korea over the following 10 years.   

KDB Chairman Lee Dong-gull has said the new loan to GM Korea will be possible if the results of due diligence are satisfactory.

The interim review results will be available by late this week, the lender said.

In other commitments to its Korean unit, GM proposed converting $2.7 billion in debt owed to it by GM Korea into equity. But this proposal was balked at by the KDB, the second-biggest shareholder.

The bank holds a 17 percent stake in GM Korea with GM controlling a 77 percent stake.

If GM carries out the debt-to-equity conversion, the KDB’s share will dwindle to less than 1 percent and it’s safe to say the bank will have no influence, or say, in GM Korea’s major decision making process, the KDB official said.

Thus, the KDB wants the so-called graded capital reduction in which GM decreases its shareholder equity through share cancellations and share repurchases, he said.  

But the two sides may have to find an alternative to the graded capital reduction as GM has balked at the idea, according to GM and the KDB.

By Song Seung-hyun and newswires (ssh@heraldccorp.com)