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(LEAD) KDB kicks off due diligence on GM Korea to determine financial support

All Headlines 16:02 March 12, 2018

(ATTN: ADDS last four paras on GM's application for designation of its plants as foreign investment zones)

SEOUL, March 12 (Yonhap) -- The state-run Korea Development Bank on Monday kicked off due diligence on GM Korea Co. as it prepares to make a decision on whether or not to extend fresh loans to the loss-making carmaker.

KDB Chairman and Chief Executive Lee Dong-gull told reporters, "There were differences between the KDB and GM over the conditions involving due diligence, but they reached an overall agreement on various aspects."

The carmaker is the South Korean unit of U.S. auto giant General Motors Co. GM holds a 77 percent stake in the company, while the South Korean lender holds 17 percent and SAIC Motor Corp. possesses 6 percent of all shares.

In a meeting with GM Executive Vice President Barry Engle last week, the chairman said GM will amend its initial stance of not providing most of the requested materials and will cooperate with the KDB so that due diligence can be carried out smoothly based on bilateral trust.

These photos show KDB Chairman and CEO Lee Dong-gull (L) and GM Executive Vice President Barry Engle. (Yonhap)

GM asked the KDB to complete due diligence within a month, but the state lender demanded two to three months as it needs to thoroughly review GM Korea's financial status and its parent GM's investment plans in its Korean unit before deciding on new loans.

After announcing its plan on Feb. 13 to shut one of its four car assembly plants in South Korea by May and to decide the fate of the remaining plants within weeks, GM has been putting pressure on the KDB to participate in efforts to turn GM Korea around by offering capital.

The state bank in response said new cash injection can only be possible if GM comes up with a "viable" plan to revive and maintain its Korean operations.

Unless GM submits most of required data to the KDB, however, due diligence may not result in any fresh loan from the Korean government, the KDB said.

PricewaterhouseCoopers will carry out a detailed review on behalf of the KDB.

Meanwhile, GM Korea has asked the Incheon Metropolitan City, home to the carmaker's Bupyeong plants, and the South Gyeongsang provincial government, home to its Changwon plant, to designate the plants as foreign investment zones so they can receive special tax benefits, a company spokesman said by phone.

"Today, the company submitted (GM's) investment plans to the two regional governments so they can be designated as foreign investment zones. But further details are not being released," the spokesman said.

To be designated a foreign investment zone, a foreign manufacturer is required to make an investment worth $30 million in facilities in a region where it has operations. Once designated, it is exempt from corporate taxes for the first five years and benefits from a 50 percent corporate tax cut for the following two years.

GM has four car assembly plants in Korea -- two in Bupyeong, one in Changwon and one in Gunsan -- which have a combined capacity of 910,000 vehicles. Last year, GM Korea sold 524,547 units, down 12 percent from a year earlier.


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