General Motors’ planned $3.6 billion cash infusion to rescue its South Korean business will be in the form of loans

General Motors’ planned $3.6 billion cash infusion to rescue its South Korean business will be in the form of loans, while Korea Development Bank (KDB) will receive preference shares for its $750 million investment in GM Korea, two sources familiar with the matter said on Wednesday.

The Detroit carmaker and state-run KDB agreed last week on $7.15 billion of investment, including a $2.8 billion debt-for-equity swap for existing loans GM Korea owed to its parent, reports Reuters.

The rescue package comes after GM Korea decided against filing for bankruptcy when it won concessions on pay, bonuses and benefits from its labor union in a tentative deal reached last week.

GM has been struggling to turn around the debt-laden unit, which has been hit by GM’s exit from Europe, where it used to export many of its cars. Its Korean business has announced plans to close one of its four South Korean plants and axe 2,600 workers.

For years GM resisted calls from South Korean officials to cut interest rates it was charging on loans to its loss-making South Korean unit, according to Reuters.

However, it is unclear whether interest rates on GM’s new loans will be lower than those on the existing debt.

Part of GM’s new loans – $800 million – will be converted into preferred stock later, sources told Reuters on Wednesday. The preference shares could be converted into common stock at a later date, the sources said. Both GM Korea and KDB declined to comment.

“GM Korea needs to pay for the cost of its voluntary redundancy program, which will be covered by fresh loans from GM,” one of the sources said, declining to be named because of the sensitivity of the matter.

The deal, which is expected to be finalized after a due diligence in early May, will not see any change in the current shareholding structure.

The U.S. automaker owns 77 percent of GM Korea, while KDB holds 17 percent and China’s SAIC Motor Corp controls the remaining 6 percent.

Under the preliminary deal with GM, the state-run Korean bank regains the veto power that allows it to block the carmaker’s sale of more than 20 percent of its assets, a KDB official has said. Its veto had expired last October.


This article has been posted by a News Hour Correspondent. For queries, please contact through [email protected]
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