General Motors pumps funds into South Korean unit

By KELLY OLSEN

posted: 33 DAYS 17 HOURS AGO

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SEOUL, South Korea -General Motors has pumped 491.2 billion won ($416 million) into its South Korean unit GM Daewoo Auto & Technology amid a dispute with the second-biggest shareholder, a state run bank, over finances and management.

The capital injection came via a new share issue that the GM Daewoo board approved in August and lifts GM's stake to over 70 percent, the South Korean company said Friday. The funds will be used for general corporate purposes, including funding the repayment of maturing debt, it said in a statement.

Company spokesman Kim Byeong-soo said GM Daewoo has about 1.3 trillion won in debt maturing from next year. The company last week paid off 125.8 billion won in debt. Kim said the money for GM's fresh investment in GM Daewoo came from the parent company's "global resources."

GM spent 40 days in bankruptcy protection this year and has received about $50 billion in U.S. government aid under an unprecedented bailout of the American auto industry amid the global financial crisis.

GM Daewoo Auto & Technology Co., South Korea's third-largest automaker, has seen its finances deteriorate due to a sharp drop in sales and losses on currency hedging bets after an unexpected and rapid depreciation of the South Korean won against the dollar.

The cash infusion also comes amid tensions between GM and state-run Korea Development Bank over management of the South Korean automaker, which GM acquired in 2002.

KDB, GM Daewoo's second-largest shareholder and main creditor, has been pressing GM to commit more funds to the South Korean unit and also wants a say in its financial management before it forks over more loans.

General Motors Co. CEO Fritz Henderson, who visited South Korea for talks last week with KDB officials, told reporters during his trip that the two sides had a "constructive and open dialogue," though declined to comment on specifics.

"The successful completion of the equity rights issue significantly strengthens GM Daewoo's liquidity and balance sheet position as we look to resume GM Daewoo's strong growth," Mike Arcamone, president and CEO of the South Korean automaker, said in the statement.

Nick Reilly, president of GM's international operations, said that "any further actions relating to the longer term funding structure of GM Daewoo will be considered if necessary"

KDB had no comment, said spokesman Moon Yong-ki.

After the share issue, GM now owns 70.1 percent of GM Daewoo, up from 50.9 percent previously. KDB saw its stake decline to 17 percent from 28 percent. Other shareholders include Japan's Suzuki Motor Corp. and China's Shanghai Automotive Industry Corp.

The other shareholders decided not to participate in the offering so GM bought all the shares, the statement said.

Sales at GM Daewoo fell 43 percent during the first nine months of this year to 401,987 vehicles, hit by the global economic slump. Sales declined 8 percent in 2008 to 881,959 vehicles.

Unlisted GM Daewoo was created after Detroit-based GM acquired Daewoo Motor Co., the automobile unit of the Daewoo Group. That conglomerate had collapsed as a result of the financial implosion that hit South Korea in 1997-98, part of the broader Asian economic crisis.

2009-10-23 08:12:42