SEOUL (Reuters) - General Motors (GM.N) and South Korea have agreed to inject $4.35 billions (3.11 billion pounds) into the carmaker’s loss-making local arm to keep it afloat after it came close to seeking bankruptcy protection.
GM has been struggling to turn round the debt-laden unit, which has been hit by GM’s exit from Europe where it used to export many of its cars. GM Korea has announced plans to close one of its four South Korean plants and let go 2,600 workers.
On Monday, GM reached a preliminary deal with its South Korean labour union, winning concessions on pay and bonuses that allowed GM Korea to avoid seeking bankruptcy protection. The deal was approved by union members on Thursday.
In a non-binding preliminary deal also on Thursday, the state-run Korea Development Bank (KDB) said it planned to provide $750 million to GM Korea, in proportion with its 17 percent stake.
Detroit-based GM will invest $3.6 billion, while converting a $2.8 billion loan to the unit into equity, the KDB said.
“The KDB has agreed to issue a conditional letter of commitment to GM on April 27, considering the urgency of GM headquarters’ liquidity support for GM Korea and aggravated management difficulties of suppliers, and smooth due diligence on GM Korea,” the KDB said in a statement.
The U.S. automaker owns 77 percent of GM Korea. KDB holds 17 percent and China’s SAIC Motor Corp Ltd (600104.SS) controls the remaining 6 percent.
Under the preliminary deal with GM, the Korean state-run bank regains a veto power that allows it to block the carmaker’s sale of more than 20 percent of its assets, a KDB official said, declining to give further details.
The KDB said it would sign a legal binding contract with GM after seeing the final results of the due diligence in early May.
The agreement came after GM president Dan Ammann said earlier on Thursday he was very close to finding a solution for the South Korean business.
“Over the last few months, over the last few weeks a lot of very good progress has been made,” he said in a meeting with South Korean ruling party lawmakers.
Reporting by Jane Chung and Hyunjoo Jin; Additional reporting Shinhyung Lee, Writing by Ju-min Park; Editing by Edwina Gibbs and Mark Potter