SEOUL - Korea Development Bank struck a deal with General Motors Co. to ensure the future of the car maker's South Korean unit, which had been in doubt because of its parent's financial woes in the U.S., reported The Wall Street Journal.
GM was bailed out by the U.S. government last year and made an initial public offering in the U.S. last month. The Detroit-based auto maker owns 70.1% in GM Daewoo Auto & Technology Co. GM took over Daewoo Motor Co. in 2002. GM Daewoo has been a manufacturing base for minivehicles and small vehicles for GM.
Government-owned KDB is a creditor as well as the second-biggest shareholder of the Korean auto maker, holding a 17% stake.
Under a previous agreement between KDB and GM Daewoo, the South Korean unit had to seek approval to use GM technology in its vehicles. The requirement bound GM Daewoo's fate tightly to the fortunes of GM. Analysts believed GM Daewoo, one of South Korea's biggest car makers, couldn't survive if GM pulled out of the country.
The new agreement gives GM Daewoo the right to use jointly developed technology without seeking approval. GM Daewoo also will be able to receive royalties from jointly developed technology.
"GM Daewoo is now able to look to opportunities to seek a continued growth through strategic ties with other car makers or [mergers and acquisitions] even if GM sells its stake in GM Daewoo and leaves the country," KDB Vice Chairman and Chief Operating Officer Kim Young-kee said at a news briefing Wednesday.
GM Daewoo on Wednesday also fully repaid 1.126 trillion won ($994.3 million) under a revolving credit facility with KDB. The company expects the settlement will decrease its borrowing costs.
"We are open to extend a loan to GM Daewoo under new contract terms, if it wants to borrow money next year," Mr. Kim said.
Under the new agreement, KDB will have veto rights over GM Daewoo's management decisions even if the bank reduces its stake in the car maker. The stake limit for the veto right was lowered to 15% from the previous 25%. The bank will also have an influence over GM Daewoo's management with the power to appoint three outside directors to the company's board.
Under Wednesday's deal, GM guaranteed it will reimburse shareholders a total of 2.3 trillion won of preferred stock in GM Daewoo between 2012 and 2017 if its Korean unit isn't able to do so.
GM Daewoo, which posted net losses in 2008 and 2009, needs to generate 400 billion won to 500 billion won a year in net profit to repay preferred stocks as scheduled, KDB said.
"GM has agreed to set up a long-term plan to help GM Daewoo have a clean bill of health, which will make GM keep a watchful eye on the unit's business developments," Mr. Kim said.
GM International Operations President Tim Lee said the new agreement assures the future of GM Daewoo. "We have aggressive business plans for our Korean unit in the domestic market as well as the international arena," he said.
