Kumho Tire confident about deal with union

Home > Business > Industry

print dictionary print

Kumho Tire confident about deal with union

Kumho Tire, the cash-strapped tire company on the brink of court receivership, is hopeful that its labor union will agree to a turnaround plan after workers rejected an earlier version.

Both sides returned to the negotiating table on Wednesday to discuss a turnaround plan proposed by Kumho Tire’s creditors, a group led by the state-owned Korea Development Bank (KDB). The negotiation took place on the same day that creditors were to discuss the fate of Kumho Tire’s debt.

As of 6 p.m., talks between management and labor were still ongoing.

“We’re waiting for the results of Kumho Tire’s negotiation with its union,” a KDB official said. “The decision by creditors will undoubtedly be determined by the results of the negotiation.”

The union’s sudden change from refusal to engagement was the result of creditors promising a larger role for members if the prospect of the company being sold to a foreign buyer comes up.

The union had refused to budge from its request that KDB completely eliminate the possibility of attracting foreign investment during a negotiation session on Monday. KDB maintained its stance that it would pursue every possible opportunity, including foreign investment.

“The reason why we have decided to return to the negotiating table is because the creditors agreed on drawing the consensus of the labor union if the company is put up for sale to a foreign buyer instead of the previous proposal of only getting consultation,” a Kumho Tire union official said.

Kumho Tire currently holds 1.3 trillion won ($1.19 billion) in debt. Creditors plan to extend the due date by a year and give a discount on interest payments - but only if the labor union and management accept a turnaround plan that includes wage cuts.

The deadline to accept the proposal was Monday, but the union refused to budge from its stance that all foreign investment be put off the table, leading to Wednesday’s meeting.

The union’s concerns stem from a previous attempt by creditors to sell Kumho Tire to a Chinese tire company, Doublestar Tire. Workers feared massive layoffs and the possibility of handing over key technology to a small company like Doublestar, which ranks 30th in the world market compared to Kumho Tire’s 14th. Even Korean President Moon Jae-in voiced reservations about the deal.

The sale to Doublestar ultimately failed after the Chinese company asked for a lower price, citing flagging performance.

Kumho Tire’s operating profit has been shrinking in the past few years, from 358.4 billion won in 2014 to 136 billion won in 2015 and 120 billion won in 2016. The estimate for 2017 is an operating loss of 20 billion won. The company has reportedly been unable to pay its workers.

Positive sentiment about Wednesday’s negotiations was reflected in the tire company’s stock price. Shares of Kumho Tire closed 5.26 percent higher than the previous day at 5,600 won.

While the stock price dropped earlier in the day as much as 9.12 percent - as the market was certain whether the deal was sealed - it later soared as much as 9.96 percent on news that the labor union had returned to the negotiation table.

But even if the talks fail and Kumho Tire goes into court receivership, analysts expect the impact on the financial industry to be limited since creditors have already stacked up enough reserves to counterbalance the loan losses.

According to Eugene Investment, the exposure of Kumho Tire is 840 billion won at state-owned banks including KDB, while at commercial banks, Woori has the largest with 360 billion won followed by Hana Financial Group with 149 billion won, KB Kookmin with 76 billion won and Shinhan with 48 billion won.

The coverage ratio of the loss at the financial companies is between 47.7 percent and 89.5 percent.

“The difference is largely due to whether Kumho has put up any collateral and how much that collateral is worth,” said Kim In, an analyst at Eugene Investment & Securities.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]
Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)