You are here: Home » Companies » News » Automobile
Business Standard

GM to convert $2 bn debt of Korean arm to equity, wants tax sops in return

Korea Development Bank believes the auto maker has not shared sufficient information about its finances or the cause of its mounting losses

Reuters  |  Seoul 

General Motors
General Motors 

The restructuring proposal comes after the automaker announced last week that it would shut its plant in the city of Gunsan, southwest of Seoul, by May and decide the future of the remaining three plants in the country within weeks.

The debt for equity swap would allow GM's business in South to continue operating. It was not immediately clear how the deal would affect the interest of the state-run Development Bank, which owns 17 per cent of GM

GM's decision was the latest in a series of steps it has made to put profitability and innovation ahead of sales and volume. Since 2015, GM has exited unprofitable markets including Europe, Australia, and

It was not immediately clear how much fresh capital GM has demanded from the to keep operating its Korean business, which employs nearly 16,000 people.

But one of the sources said GM had asked to provide financial support worth over $1 billion, while several sources said GM wanted its South factory sites designated as special foreign investment zones that would make the company eligible for tax breaks for seven years.

"GM says it will recapitalise its Korean unit, and in return it's asking South to accept its packaged proposal that includes government support worth over $1 billion," the person said, declining to be named due to the sensitivity of the subject.

A GM said the company would continue to work with the government and labour union to secure support for its viability plan.

On Tuesday, Barry Engle, of GM's international operations, met with a task force headed by a ruling party lawmaker from Bupyeong, where GM has its biggest manufacturing plant, to discuss its restructuring plan.

After the meeting, Engle told reporters the company wanted to stay in South

"It is certainly our preference to stay and to fix the business and continue to be an important part of the economy," he said. "I'm encouraged by the discussions and I am optimistic that that is an outcome that together we can achieve." He declined to comment further on the discussions between GM and the

A South Korean lawmaker, Kim Sung-tae, said Engle told the lawmakers that the company planned to produce two new models in South

Engle did not elaborate on whether GM's plan for the two new were dependent on government support for the automaker, said Kim, who attended the meeting.

Engle told lawmakers that GM would try to maintain output at the current level of around 500,000 vehicles a year, according to Kang Hoon-sik, a for the ruling party. GM's South Korean unit produced 519,385 vehicles last year, compared with 942,805 a decade ago.

told reporters on Tuesday that the government would "closely consult with GM to normalise its management," adding that a due diligence on the company should come first.

South Korea's presidential office also said Tuesday that it would designate an employment "crisis zone", opening the way for government subsidies like cheap loans and other financial support for those laid off.

No Decision Yet

officials said it was too early to decide on any financial backing, as it wanted to conduct due diligence before committing fresh investment in GM

The tensions also come at a difficult time for U.S.-South Korean relations given U.S. Donald Trump's determination to renegotiate the U.S.-Free Trade Agreement.

Development believes the has not shared sufficient information about its finances or the cause of its mounting losses, according to officials from the and government officials.

"They have requested for help and a of the situation is among many preconditions before any public funds can be set aside," a said, requesting anonymity due to the sensitivity of the matter, referring to GM.

Another said GM had not filed an official application to get its South factory sites designated as foreign investment zones, but it was "testing waters" to check the possibility.

South was for years a low-cost export hub for GM, producing close to a fifth of its global output at its peak.

But the automaker's decision to exit other unprofitable markets have exacerbated problems for GM Korea, which used to build many of the Chevrolet models GM once offered in

First Published: Wed, February 21 2018. 13:07 IST