The Korea Development Bank (KDB) and General Motors expect to complete negotiations over whether to provide a new emergency loan for GM’s struggling Korean unit in mid-October when the automaker’s CEO Fritz Henderson is scheduled to visit Korea, industry sources have said.

Henderson’s travel plan has not been officially confirmed, but he is likely to meet with officials of the KDB and the financial authorities to discuss how much financial support the KDB should provide to help GM Daewoo stay afloat, the sources told the Korea Herald.

Last February, GM Daewoo Auto and Technology, which designs and builds models branded mainly Chevrolet outside Korea, sought emergency funding of 1 trillion won (US$836.8m) from its main creditor KDB to cover costs of new vehicle development and export finance.

However, the state-run lender, which holds a 27.97% stake in GM Daewoo, refused to provide the loan and demanded parent firm GM’s plan for the long-term profitability of its Korean unit. GM holds 51% of GM Daewoo.

According to company data, GM Daewoo’s car sales in the first eight months of 2009 plummeted 45.4% year on year to 344,444 units.

GM Daewoo said on 4 September it would raise 491.2bn won in a rights offering next month to use as operating funds. As GM owns more than half of the stake, it has to raise 250bn won for the rights offering.

KDB officials told the Korea Herald the size of the rights offering is too small, demanding a larger support from GM.

“We want GM to first ensure long-term competitiveness of GM Daewoo. And the 250bn won is not enough to hold GM accountable (for the losses of GM Daewoo),” an anonymous KDB official said.

“In addition, there is little reason for the creditor to cover the costs of new car development,” he added.

The state-run bank also wants a bigger role in management of GM Daewoo.

Currently, the 10-member board of directors consists of seven executives from GM and three from KDB.

Another demand of the KDB is that GM hands over the licences of vehicles produced by GM Daewoo to its Korean unit, bank officials told the paper.