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GM offers $2.2 billion debt for equity swap in return for Seoul’s support

Non-specific Motors has offered to convert debt of around $2.2 billion owed by its worrying South Korean operations into equity in exchange for financial backup and tax benefits from Seoul, four sources with direct data of the matter said.

The restructuring proposal comes after the Detroit automaker announced finish finally week that it would shut its plant in the city of Gunsan — southwest of Seoul — by May and reach the future of the remaining three plants in the country within weeks.

The accountable for equity swap would allow GM’s business in South Korea to sustain operating. It was not immediately clear how the deal would affect the interest of the state-run Korea Advancement Bank, which owns 17 percent of GM Korea.

GM’s decision was the new in a series of steps it has made to put profitability and innovation ahead of sales and measure. Since 2015, GM has exited unprofitable markets including Europe, Australia, South Africa and Russia.

It was not instanter clear how much fresh capital GM has demanded from the South Korean management to keep operating its Korean business, which employs nearly 16,000 people.

But one of the origins said GM had asked Seoul to provide financial support worth closed $1 billion, while several sources said GM wanted its South Korea works sites designated as special foreign investment zones that purpose make the company eligible for tax breaks for seven years.

“GM says it desire recapitalise its Korean unit, and in return it’s asking South Korea to endure its packaged proposal that includes government support worth for $1 billion,” the person said, declining to be named due to the sensitivity of the prone to.

A GM Korea spokesman said the company would continue to work with the control and labour union to secure support for its viability plan.

On Tuesday, Barry Engle, gourd of GM’s international operations, met with a task force headed by a ruling aid lawmaker from Bupyeong, where GM Korea has its biggest manufacturing assign, to discuss its restructuring plan.

After the meeting, Engle told anchorwomen the company wanted to stay in South Korea and fix the business.

“It is certainly our prejudice to stay and to fix the business and continue to be an important part of the Korea economy,” he denoted. “I’m encouraged by the discussions and I am optimistic that that is an outcome that together we can execute.” He declined to comment further on the discussions between GM and the South Korean direction.

A South Korean lawmaker, Kim Sung-tae, said Engle told the lawmakers that the gathering planned to produce two new models in South Korea.

Engle did not elaborate on whether GM’s plot for the two new car models were dependent on government support for the automaker, said Kim, who attended the union.

South Korean government officials said it was too early to decide on any economic backing, as it wanted to conduct due diligence before committing fresh investment.

The tensions also go about a find at a difficult time for U.S.-South Korea relations given U.S. President Donald Trump’s will power to re-negotiate the U.S.-Korea Free Trade Agreement.

Korea Development Bank confidence ins the automaker has not shared sufficient information about its finances or the cause of its mounting depletions, according to officials from the bank and government officials.

“They induce requested for help and a thorough audit of the situation is among many requirements before any public funds can be set aside,” a government official told Reuters, requisitioning anonymity due to the sensitivity of the matter, referring to GM.

Another government official maintained GM had not filed an official application yet to get its South Korea factory sites identified as foreign investment zones, but it was “testing waters” to check the possibility.

South Korea was for years a low-cost export hub for GM, fruiting close to a fifth of its global output at its peak.

But the automaker’s decision to flight other unprofitable markets has exacerbated problems for GM Korea, which hand-me-down to build many of the Chevrolet models GM once offered in Europe.

GM Korea shored a total of 1.9 trillion won ($1.8 billion) in net losses between 2014 and 2016.

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