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Exclusive: South Korea's KDB, GM Korea may sign preliminary funding deal by April 27

Reuters  |  SEOUL 

By and Ju-min Park

(Reuters) - (KDB) may sign a preliminary agreement by April 27 to financially support General Motors Co's troubled South Korean unit, provided interim due-diligence on the unit is satisfactory, the of the lender said.

This is the first time has offered a time-frame for a decision on whether to financially back GM Korea, in which the has a 17 percent stake. The and government officials have so far been non-committal.

GM proposed in February an investment of $2.8 billion into its money-losing South Korean operations over 10 years, days after announcing a sweeping restructuring. It has asked to provide a share of the funds for the overhaul.

The U.S. automaker owns 77 percent of GM Korea, while GM's main Chinese partner, SAIC Motor Corp Ltd, controls the remaining 6 percent.

may offer about 500 billion won ($468.42 million), proportional to its stake, to help fund GM's pledged investment in the unit, and CEO told

GM's told last week that common ground must be reached on a long-term restructuring of by this Friday, and if there was none, the operation would likely seek bankruptcy protection.

GM shocked in February with plans to close one local plant and leaving the fate of three others unclear. It is seeking government funding and incentives as well as labour cost cuts to save the unit, which in 2017 posted a net loss of $1.1 billion, its fourth straight year in the red.

"If GM injects equity into the unit, we will inject equity. If GM extends loans to the unit, we will extend loans as well," Lee said, adding prefers to take part in a rights offering rather than lending to the unit.

"We may be able to reach a very meaningful agreement by April 27, whether it is a verbal promise or conditional MOU," he said, referring to a memorandum of understanding.

KDB's interim due diligence report on is scheduled to be out on Friday, but has so far not submitted sufficient documents for to assess its financial viability, Lee added.

He said the would be able to sign a legally binding deal with the automaker after a final report is out in late April or early May.

"We are in continued discussions with the and the government with intent to inject new funds and convert debt into equity," a said.

LEGAL ACTION

Lee said would have no choice but to consider taking "appropriate legal action" should the U.S. automaker opt to liquidate its unit without consulting the

Lee said GM should offer a long-term commitment to to get government support.

He said many South Koreans believe GM may eventually leave when government subsidies dry up, as the U.S. automaker did in and

"They have to show a commitment to remaining as a good corporate citizen," Lee said.

"What GM really needs to know is that anti-GM sentiment is very strong in I told GM that they need to make me feel comfortable before I can make some kind of decisions."

Lee had a series of meetings with Barry Engle, of GM's international operations, who visited to discuss a restructuring plan with the government and the union.

was one of GM's major and engineering bases in after its 2002 purchase of failed South Korean But the unit has struggled in recent years since GM pulled its brand from Europe, hitting exports to GM Korea's major market.

"The mutual trust hit rock bottom. We have to enhance trust and this will not happen overnight," Lee said.

and its union plan to hold another round of talks on a restructuring deal on Wednesday morning, a union said. "We are trying to resolve the problem with a dialogue."

On Tuesday, Hong Young-pyo, a ruling party lawmaker, met GM and union officials and called for the two sides to reach an agreement by April 20 to pave the way for government support.

"The time bomb is ticking," he told reporters.

($1 = 1,067.4100 won)

(Reporting by and Ju-min Park; Additional reporting by Joori Roh; Editing by and Himani Sarkar)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, April 17 2018. 14:55 IST
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