Korea Development Bank (KDB) is struggling with restructuring of big ailing corporations put under its care.
For example, KDB should determine within this month whether to invest US$375 million in GM Korea. Under a normalization plan, GM Korea is supposed to receive US$750 million in investment from KDB on condition that it stays in the South Korean market for 10 years to come. Half of the money has already been invested in the ailing carmaker.
KDB is in a dilemma now. At present, litigation is ongoing with the GM headquarters over the proposed R&D unit separation from GM Korea and, as such, KDB is in no position to invest the remaining amount. Still, delaying the investment will constitute a breach of contract, further tempting GM to withdraw from South Korea.
GM Korea held an extraordinary meeting of shareholders last month and decided to separate its R&D unit. Then, KDB filed for an injunction to nullify the decision. KDB’s request was turned down at the first trial, but KDB partially won the case at the second trial. The appeal filed by GM Korea is scheduled to be underway. “In principle, we have to execute the remaining investment, yet we cannot ignore public opinions against it,” KDB explained.
KDB is currently in charge of restructuring of Hyundai Merchant Marine, Daewoo Shipbuilding & Marine Engineering and Kumho Tire. Its restructuring processes for these companies are not going well, either.
Hyundai Merchant Marine is likely to face capital impairment next year without government support and at least six trillion won needs to be poured into the company until 2020. KDB is criticizing Hyundai Merchant Marine for employees’ moral hazard, yet the company is claiming that the number of its employees is at the minimum required level and the number was increased against its own will during the recent shipping industry restructuring that forced it to absorb other companies’ employees. In addition, Hyundai is saying that KDB is currently controlling its management with a shareholding of 13.13% and it makes no sense at all for KDB to blame it for poor management.
When it comes to Kumho Tire, KDB needs to prepare special measures as the company has been in the red for seven quarters in a row.
In the meantime, experts point out Daewoo Shipbuilding & Marine Engineering, which is the least viable among the three largest South Korean shipbuilders, should be restructured so that the shipbuilding industry of South Korea as a whole can become more competitive, and KDB’s dilemma lies in the fact that Daewoo recently clinched a series of large-scale contracts. “KDB is failing to raise its voice amid unionized workers’ opposition to restructuring, political pressures, and so on, adding to concerns over another waste of taxpayers’ money,” said an industry insider.