GM steps up pressure, hints at withdrawing debt-equity swap

By Kim Bo-gyung

Published : Apr 15, 2018 - 17:42
Updated : Apr 15, 2018 - 17:51

With the due date for GM Korea to reach a consensus with its labor union approaching on Friday, the GM headquarters and the government remain deadlocked over ways to deal with the local unit’s 3 trillion won ($2.7 billion) loan.

US-based auto giant General Motors has turned down the government’s request for a selective capital reduction and instead intensified pressure, hinting at the possibility of withdrawing plans for a debt-equity swap.

During a meeting with the state-run Korea Development Bank here last week, GM Executive Vice President Barry Engle reportedly suggested that the GM headquarters cover GM Korea’s loans and the KDB make new investments.

Engle, who has visited the country six times this year, is widely expected to stay in Korea until the Friday deadline.

GM Korea CEO Kaher Kazem and GM President Dan Ammann have stated that the company would file for bankruptcy protection if the union remains opposed to the rescue plan by Friday.

GM’s latest shift in stance from its initial proposal to convert GM Korea’s roughly 3 trillion won loan to equity was made in response to KDB’s suggestion for a selective capital reduction. 

A selective capital reduction concerns the major shareholder, and applies a different rate of reduction from ordinary shareholders in order to hold the major shareholder more responsible for the weakened business.

(Yonhap)


KDB had asked for a minimum 20:1 selective capital reduction to retain its ownership percentage and to keep GM’s stake below 85 percent, the threshold for shareholders to pass a vote at a general meeting.

Without a selective capital reduction, the debt-equity swap would downsize KDB’s current 17 percent stake to less than 1 percent.

Among the 3 trillion won that GM Korea owes the headquarters, some 1.7 trillion won is due by the end of this month.

GM Korea also has to come up with some 500 billion won to pay 2,500 workers who had signed up for voluntary redundancy last month by April 27.

Reiterating its stance that GM has to do its part before the government injects capital, KDB Chairman Lee Dong-gull said the “selective capital reduction is a hurdle to overcome.”

According to the KDB, GM has not provided a straightforward answer regarding its request for documents to back up the automaker’s plans to invest $2.8 billion in new vehicle production and research and development here.

The jittery mood at GM Korea is expected to exacerbate once results for the labor union’s request to legally hold a strike comes out on Tuesday.

The eighth round of pay negotiations between the union and GM Korea fell apart last week due to a disagreement over the company’s request to install a CCTV camera at the venue following a sit-in protest at company headquarters in Incheon earlier this month.

GM Korea posted a net loss of 1.1 trillion won last year, compared to 631.3 billion won in 2016, according to the Financial Supervisory Service’s Data Analysis, Retrieval and Transfer System.

Its revenue also dropped by 12.5 percent on-year to 10.6 trillion won in 2017, while its 4.8 trillion won current liability surpassed current assets of 2.2 trillion won, data showed. 

By Kim Bo-gyung (lisakim425@heraldcorp.com)

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The Korea Herald by Herald Corporation