GM agrees to stay 10 more years in Korea

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GM agrees to stay 10 more years in Korea

GM headquarters and the Korean government reached an agreement yesterday that will keep the automaker here for at least 10 more years.

GM and the government also agreed to invest $7.15 billion in the local unit. GM will also reinstate the veto rights of GM Korea’s second-largest stakeholder, the Korea Development Bank (KDB), which expired in October last year.

According to the KDB on Thursday, GM President Dan Ammann, KDB President Lee Dong-gull, Finance Minister Kim Dong-yeon and Commerce Minister Paik Un-gyu, along with other top government officials, reached a tentative agreement. The details were announced during GM’s first-quarter earnings conference call.

Under the agreement, GM will invest $6.4 billion and the KDB $750 million in GM Korea, which corresponds with their stakes in the company. GM owns 76.96 percent of its Korean operation while the KDB has a 17.02 percent stake.

GM’s investment also includes a $2.7 billion debt-equity swap. This means that the new loans that will be injected into GM Korea will amount to $4.45 billion.

GM previously planned to give the company $2.8 billion in new loans, while the KDB was supposed to provide around 500 billion won ($467 million). For the U.S. automaker, the loan plan has grown to $3.7 billion, while for the state-owned bank, that figure has gone up to $750 million.

The Korean government succeeded in getting GM to commit to at least 10 more years in Korea and keeping the KDB’s veto right, which prevents the U.S. automaker from selling more than 20 percent of GM Korea’s shares or assets. Many in the industry were concerned that after the KDB’s 15-year-old veto right expired last year, GM could pull out of Korea whenever it pleased.

Now that the two sides have reached an agreement, it is likely that the Korean government will designate both of GM Korea’s plants as foreign investment zones. That will give GM access to tax benefits, including exemption on corporate taxes, for five years.

Observers picked up on the possibility of a deal coming today when Ammann said that negotiations with the Korean government were going well during a visit to the National Assembly earlier on Thursday.

“Over the last few months, over the last few weeks a lot of very good progress has been made,” Ammann said.

The negotiations picked up momentum after the company cleared its biggest hurdle by signing a deal with GM Korea’s union on a plan that will freeze workers’ salaries and bonuses.

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