Posted by: Ihlwan Moon on October 15, 2009
Even as General Motors is trying hard to ramp up its product pipeline to stop a slide in its market share, the company’s management is still struggling to rescue its troubled Korean unit. GM CEO Frederick A. “Fritz” Henderson said in Seoul on Oct. 15 he had held “very constructive” talks with the government-run Korea Development Bank (KDB) on ways to provide fresh support for GM Daewoo Auto and Technology. But Henderson and other top GM executives admit that they have yet to secure enough liquidity to navigate the Korean unit through the global recession.
Henderson, visiting Korea after eight months of negotiations between GM and KDB, the Korean unit’s main creditor, confirmed that GM would inject fresh capital in GM Daewoo. The American auto giant, which owns 51% of GM Daewoo, will take part in the Korean unit’s plan to raise $425 million by selling new shares to existing shareholders, according to GM officials. Other shareholders have yet to agree to take up the rights offer. “I would say the discussions were very much focused on how we, collectively as shareholders and with KDB as the principal creditor of GM Daewoo, can make GM Daewoo successful in the future,” Henderson said of his talks with the bank.
But all indications are that GM has yet to persuade KDB to offer new loans that the Koran unit is seeking. The bank, which also owns 28% of GM Daewoo, has been demanding that GM makes commitment to maintaining a big presence in Korea. KDB Chief Executive Min Euoo Sung said last week it would be difficult for the bank to provide new loans to GM Daewoo due to its “deteriorated financial status,” unless GM itself plays “a major role” in stabilizing the Korean unit. The local media has reported that KDB also asked that GM and its Daewoo subsidiary share licenses for vehicles they develop jointly and that the bank be allowed to participate in the management of GM Daewoo as part of a long-term development plan for the automaker.
GM Daewoo has requested additional loans from KDB and other creditors, after exhausting a $2 billion credit line. The South Korean unit is a key hub in Asia for GM, responsible for developing and designing small cars.