The General Motors board has allowed the carmaker join its cash-strapped South Korean affiliate GM-Daewoo’s new rights offer, CEO Fritz Henderson said on Thursday. He did not elaborate. Meanwhile, state-run Korea Development Bank (KDB) said it would not participate in the rights offering if the US carmaker did not meet its request for financial aid to its local unit.
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Henderson, in South Korea for the first time since GM emerged from US Chapter 11 bankruptcy last summer, spoke at a press conference a day after talks with the (KDB) – GM Daewoo’s main creditor – on the struggling local unit’s future.
GM Daewoo is seeking a KRW1 trillion (US$855m) loan after using up a $2bn credit line.
“We had a constructive and open dialogue with KDB,” Henderson told the Korea Times at a GM Daewoo plant on the outskirts of Seoul. He declined to provide more details.
“The team here has worked to improve the financial situation and it is no longer as critical as it was earlier, but we still need additional funds,” Reilly told the Korea Herald.
“Discussions with shareholders and banks with which we have outstanding debt are under way, but whether to repay, roll over or take out additional loans has not been concluded.”
Last week, KDB said that it would call back maturing loans and foreign exchange contracts unless GM agreed to some of its demands, including raising more money for GM Daewoo, the Korea Times noted.
GM Daewoo, the third-largest car maker in South Korea, said earlier this month it would raise KRW491.2 bn won in a rights offering. Based on the plan, the US parent, which owns 51% of the local subsidiary, would have to raise KRW250bn.
According to the paper, state bank chief Min Euoo-sung indicated that GM would have to raise more than KRW250bn but it was unclear from Henderson’s remarks whether the automaker would increase the amount of its paid-in capital.
The Korea Times noted that negotiations between KDB and GM Daewoo had made little progress since they began in February due to GM’s refusal to offer part of its GM Daewoo stake as collateral. KDB officials have been calling on GM to take more responsibility for “misguided” management.
Nonetheless, the visiting US GM executives stressed their intention to keep GM Daewoo afloat.
“We, and the KDB as shareholder, have no intention of putting GM Daewoo into court receivership,” said GM’s executive vice president Nick Reilly. He said that GM had resources around the world that can be “used wisely” to invest in GM’s businesses, including the operation in South Korea.
Analysts have said the Korean unit is essential as it develops the fuel-efficient cars GM needs to sell in quantity world-wide, mainly under the Chevrolet brand. GM-Daewoo developed the Cruze sedan, launched earlier this year, and ships it from Korea to Asia and Europe. US production starts next year. GM-Daewoo also makes the Chevy Aveo hatchback and sedan line GM sells worldwide, including in North America.
Asked by the Korea Herald if the sale of GM’s German arm Opel would affect GM Daewoo’s product development capabilities, Henderson said that GM has worked to keep that link intact and that he had no concerns that GM Daewoo will be adversely affected.
The Korea Times said Henderson later on Thursday met with South Korean president Lee Myung-bak but officials said the two had no discussions regarding GM Daewoo’s financial condition.
Lee asked the GM chief to give more attention to the Korean affiliate, the presidential office said.
Analysts told the paper that, although KDB is refusing to inject money into GM Daewoo at the moment unless its demands are met, it is likely to end up doing so because the car maker’s collapse would worsen rising unemployment.
Although the GM executives declined to comment directly on the negotiations with the KDB, the Korea Herald added, comments hinted that issues surrounding some of the bank’s demands remain unresolved.
Among other conditions, the KDB is said to be requesting transfer of licences for vehicles in which GM Daewoo played a major role and installing a co-chief finance officer.
“In terms of licences and intellectual property, there have been some reports, but no decision has been made on the issue,” Reilly said.
Concerning KDB’s request to install a co-CFO at GM Daewoo, Reilly said that the company sees no need to make changes to its financial management.
However, he said that although GM Daewoo had been successful in currency hedging in the past and such measures are necessary for the company, the company is reviewing its hedging policies.
Separately, Reuters reported that KDB had said it would not participate in the rights offering if the US carmaker did not meet its request for financial aid to GM Daewoo.
Though GM Daewoo said it would raise KRW491.2bn by selling new shares to existing shareholders, KDB wants the figure to be more than doubled, according to the report.
“None of our demands have been met. In the current situation, we won’t participate in the rights offering,” a KDB spokesman told Reuters.
GM Daewoo on Friday paid back KRW125.8bn ($108.7m) in maturing loans, the report added.
