Blocking GM from Leaving: Korean Gov’t Will Not Sell KDB’s Stake in GM Korea | BusinessKorea

Monday, October 23, 2017

The KDB is planning to retain its stake in GM Korea for the time being.
The KDB is planning to retain its stake in GM Korea for the time being.
SEOUL,KOREA
29 September 2017 - 11:45am
Jung Min-hee

The Korean government decided not to sell the Korea Development Bank (KDB)’s stake in GM Korea. The decision was made in order to prevent GM from withdrawing from the Korean market by arbitrarily applying for court receivership. However, when the veto right of the KDB’s stake expires on October 17, GM Korea may withdraw from Korea in a way to sell off its equities.

"Apart from its policy of selling-off stakes in non-financial firms under its management, the KDB is planning to retain its stake in GM Korea for the time being," said a high-ranking government official on September 28. Currently, 76.96% equities in GM Korea are held by GM affiliates including GM Invest and GM Asia Pacific Holdings. The KDB is the second largest shareholder with 17.02%, and Shanghai Automotive Industry Corporation holds a 6.02% stake. Although the KDB is the second largest shareholder, KDB secured a 15-year-long veto right against GM Korea’s sell-off of its equities in GM Korea during the process to take over Daewoo Motors, the predecessor of GM Korea, for job security reasons in 2002. But the veto right will be invalidated on October 17.

The government has set its direction to make the KDB retain its stake in GM Korea even if the veto right expires with the goal of preventing GM from arbitrarily applying for court receivership. "After October, no one can stop GM from selling its stake but the KDB will still have the power to refuse GM's application for court receivership," a government official said.

GM Korea has been suffering from financial difficulties with an operating loss of more than 1 trillion won (US$900 million) over the past three years. Some analysts say that if GM fails to find a buyer of its stake, it will be able to leave the Korean market via liquidation such as court receivership. This is because GM will be able to take some money even through liquidation. For example, the official land price of GM Korea’s Bupyeong factory site in Korea is more than 4 trillion won (US$3.6 billion). However, if the KDB maintains its position as the second largest shareholder, such a possibility will be discounted.

Of course, things will be different if GM Korea finds a third party to buy GM Korea’s stake. According to the government, GM and the KDB are under a dragger loan agreement which means that if GM sells off its stake in GM Korea to a third party, the KDB’s stake must be sold off to the third party, too. After October when the KDB’s veto right will disappear, GM will be able to leave the Korean market through the sale of its stake in GM Korea without taking steps to take over equities in GM Korea from the KDB.

At present, however, both GM Korea and the Korean government agree that riding out financial difficulties in Korea is GM Korea’s top priority rather than GM's withdrawal. "We are going to concentrate on enhancing GM's competitiveness and profitability," said Kaher Kazem, GM Korea's new president who recently met with reporters. "Korea is one of GM's five major markets. We will focus on boosting GM Korea’s competitiveness and profitability,” Kazem said. As a result, restructuring work is under way, including reducing GM Korea's ordinary expenditure. The government also plans to support GM Korea’s restructuring while keeping minimum measures to prevent its withdrawal from Korea. It is expected that this content will be included in the government’s plan to strengthen the competitiveness of the automobile industry which will be announced at the end of this year.

 

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