GM to provide loans to Korean unit, state-run bank to get shares

General Motors

General Motors planned $3.6 billion cash infusion to save its South Korean business is going to be in the form of loans, while Korea Development Bank (KDB) will get preference shares for its $750 million investment in GM Korea, two sources knowledgeable with the issue stated on Wednesday.

The Detroit automaker and state-run KDB agreed recently on $7.15 billion of investment, including a $2.8 billion debt-for-equity swap for present loans GM Korea owed to its parent.

The rescue package comes after GM Korea took decision against filing for bankruptcy when it won concessions on pay, bonuses and benefits from its labor union in a tentative deal reached during last week.

The automaker has been struggling to turn around the debt-laden unit, which has been impacted by GM’s exit from Europe, where it used to export many of its vehicles.

Its Korean business has declared strategies to shut down one of its four South Korean plants and axe 2,600 workers.

For years GM resisted calls from South Korean authorities to cut interest rates it was charging on loans to its loss-making South Korean unit, as per the three sources and documents read by Reuters.

However, it is not clear whether interest rates on GM’s new loans will be less compared to those on the existing debt.

Part of automaker’s new loans – $800 million – will be converted into preferred stock later, sources informed Reuters on Wednesday.

The preference shares maybe converted into common stock at a later date, the sources stated.

Both GM Korea and KDB refused to comment.

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