UPDATE:GM Daewoo Seeks Financial Aid From Korea Development Bank
20 February 2009 - 4:47PM
Dow Jones News
GM Daewoo Auto & Technology Co., the South Korean unit of
General Motors Corp. (GM) has asked for emergency funding from
Korea Development Bank as it faces a liquidity crunch, a KDB
official said Friday.
The official, who declined to be named, told Dow Jones Newswires
the automaker has already reached its credit limit of 1.3 trillion
won (US$865 million) from KDB and commercial banks, and GM Daewoo
has KRW125 billion in loans coming due in October.
In total, GM Daewoo owes KRW1.055 trillion to the state-run
KDB.
The official declined to say how much the automaker was seeking
in aid noting an amount hasn't been discussed yet, but Yonhap News
Agency reported Friday the company has asked for KRW1 trillion as
it faces a liquidity crunch.
"We will decide whether to offer financial aid to GM Daewoo
after reviewing documents about the company's financial status,"
said the KDB official.
GM Daewoo confirmed the request made to KDB and said it will
submit formal documents for financial help.
"We are in discussions with the Korean government and KDB to
secure credit lines during the current global credit market
liquidity shortage in order to fund new product development plans
and new plant investment projects," GM Daewoo spokesman Park Hae-ho
said.
Park said GM Daewoo President and Chief Executive Michael
Grimaldi met KDB Governor Min Euoo-sung last Friday to ask for
financial support.
GM Daewoo's woes underscore the difficulties automakers around
the globe are facing as they grapple with a slump in demand as
consumers tighten their purse strings amid the global economic
downturn. They also highlight the dire situation at its parent
General Motors. In a revamped restructuring plan submitted to the
U.S. treasury on Tuesday, General Motors said it needs up to $16.6
billion in federal assistance on top of the $13.4 billion in loans
it has received since December. General Motors said it might need
as much as $100 billion in financing from the U.S. government if it
were to go through the traditional bankruptcy process.
GM Daewoo was set up in 2002 when General Motors and its
partners bought a majority stake in the automobile unit of bankrupt
South Korean conglomerate Daewoo Group, which collapsed in 1998
under mountains of debt.
GM Daewoo was one of a few profitable overseas units under
General Motors, but the U.S. company's own financial problems have
also made it difficult for the South Korean unit.
In January, GM Daewoo's total sales fell 51% from a year earlier
to 45,842 units, compared with the industry's 35% drop. GM Daewoo
has adjusted production at its three South Korean plants in
Bupyeong, Gunsan and Changwon to keep inventory low amid lower
demand.
On Feb. 11, two days before his visit to KDB, Grimaldi met
Knowledge Economy Minister Lee Youn-ho to request financial aid
from the government, according to a ministry official. She said
that the government rejected the request because it is against the
law for it to financially support a company or an industry.
While it remains unclear whether KDB will step in, the state-run
bank has bailed out other distressed South Korean companies in the
past. In late December, nine creditors of Hynix Semiconductors Inc.
(000660.SE) including KDB agreed to provide KRW800 billion in
financial aid to the chipmaker, which has suffered from mounting
losses amid a chip industry glut.
-By Kyong-Ae Choi and Jin-Young Yook, Dow Jones Newswires;
822-2198-2236; kyong-ae.choi@dowjones.com