Drastic Conclusion
On April 1, unionized Kumho Tire workers took a vote on the sale of their company to Qingdao Doublestar. 91.8% of the registered union members took part in the voting and 60.6% of the participants voted in favor of the sale.
On March 31, in the meantime, Kumho Tire employers and employees signed a special agreement for business stabilization. According to the agreement, the employees are going to voluntarily return about 25% of their bonuses for two years and have their wages frozen from 2017 to 2019 with some employee benefits suspended. When it comes to the company’s Gwangju and Goksung Plants, the workers are going to raise their productivity by 4.5% and the plants will be closed for 40 days a year, which are divided into 20 without payment and 20 with 50% of their ordinary wages.
The employers and employees are planning to sign their final agreement in Gwangju on April 2. Then, Kumho Tire and main creditor Korea Development Bank (KDB) sign a memorandum of understanding so that the latter and the other creditors immediately provide up to 200 billion won for the former. This money is scheduled to be spent for such purposes as commercial paper repayment due on April 2, payment of three-month back pay, and payment to subcontractors.
In addition, the creditors and Qingdao Doublestar are going to initiate a negotiation on capital attraction. Their final contract may be signed within this week so that 646.3 billion won can be invested in Kumho Tire by the Chinese company. Furthermore, the creditors will provide a loan of up to 200 billion won with regard to Kumho Tire’s manufacturing facilities while arranging its existing loans so that the loans can be extended by five years and 23.3 billion won can be saved in annual interest.
The creditors already gave their conditional approval for Qingdao Doublestar’s investment in Kumho Tire on March 16. According to it, Qingdao Doublestar is slated to participate in a capital increase of 646.3 billion won and become the largest shareholder with a shareholding of 45%. Qingdao Doublestar should maintain employment and should not sell its shares for three years. In addition, it should remain the largest shareholder for five years or until the creditors sell their shares.
Still, there are some tasks to be handled until detailed negotiations and business stabilization. First of all, measures should be prepared for Kumho Tire’s independent management, that is, business plans determined by South Korean executives and shareholders in compliance with South Korean law with the headquarters of Kumho Tire located in South Korea. Doublestar Chairman Chai Yongsen said on March 22 that he would guarantee it as in the case of Geely and Volvo.
The other required measures include those to prevent the Chinese company from dining and dashing like SAIC Motor did in the past in relation to SsangYong Motor. Although more than half of the unionized workers voted in favor of the sale, the deal was opposed by no less than 35% of the registered union members, which amounts to 1,052 workers, and this means a large number of Kumho Tire workers are still distrusting the Chinese tire manufacturer. Besides, it is said that many of those who voted in favor did so in order to block their company from going into receivership. “Doublestar’s business stabilization plan still has a number of ambiguous parts and we need a clearer long-term investment plan and clearer measures for Kumho Tire’s growth,” one of them pointed out.
As mentioned above, Doublestar promised to maintain their employment for three years and remain the largest shareholder for five years. This means the Chinese company may go away with its investment and Kumho Tire’s technology in five years. The workers are concerned over the possibility of a decline in domestic production that could follow Doublestar’s business rearrangement for more concentration on factories in China, and what is needed in this context is a way of minimizing the impact on factories in South Korea while raising the capacity utilization of those in China.
KDB Chairman Lee Dong-geol promised that the creditors, which are the second-largest shareholder with a shareholding of 23.1%, would keep monitoring every part of Doublestar’s business activities and Doublestar would not shut down the South Korean factories. “Doublestar should obtain the creditors’ consent in advance in order to change Kumho Tire’s capital structure, pay dividends, do transactions with affiliated parties, or transfer intellectual property rights such as technology,” the KDB explained, adding, “It will take at least 15 years for Doublestar to recover its investment by means of dividends.”