Gov't Agrees Massive Bailout for GM Korea

The government and state-run Korea Development Bank agreed on Thursday to inject W810 billion into cash-strapped GM Korea (US$1=W1,080). The last-minute agreement is likely to save 156,000 jobs at GM Korea and subcontractors.

KDB, the largest shareholder, was initially expected to invest some W500 billion into the Korean subsidiary, but GM headquarters demanded more to improve production facilities.

KDB said the agreement was motivated by concerns over the worsening financial woes of parts suppliers. The government and KDB obtained a legally binding pledge from GM to keep its remaining Korean plants open for at least another decade and make long-term investments.

GM apparently agreed to include a clause banning it from selling the Korean unit without the approval of KDB and to invest W3.89 trillion over the next 10 years, while swapping W2.91 trillion in loans to GM Korea into equity.

The agreement will be finalized around the middle of next month, when the due diligence is complete. But neither KDB nor GM revealed details of the agreement, fueling suspicions of backroom dealing and lack of transparency in handling taxpayers' money.

Although KDB will maintain a 17-percent stake in GM Korea, most of the stake apparently does not entail voting rights. A KDB staffer said, "The stake that GM headquarters will gain in GM Korea also has no voting rights."

Many obstacles remain until GM Korea returns to normal operations. The new models GM is to roll out here will not be available until late next year or 2022. In the meantime, there is no source of fresh revenues.

GM Korea suffered a major blow to its brand image due to the latest crisis.