General Motors has offered to restructure the balance sheet of its ailing South Korean unit as part of a deal with Seoul to keep operating in the country.
Reuters reported that GM would convert debt of around $2.2 billion owed by GM Korea into equity in exchange for financial support and tax benefits from the South Korean government. GM Korea has a total debt load of about $2.8 billion.
“GM says it will recapitalize its Korean unit, and in return it’s asking South Korea to accept its packaged proposal that includes government support worth over $1 billion,” a source with direct knowledge of the matter told Reuters.
Sources also said GM wanted its South Korea factory sites designated as special foreign investment zones that would make the company eligible for tax breaks for seven years.
South Korea was for years a low-cost export hub for GM, producing close to a fifth of global output at its peak. But it posted combined losses of $1.8 billion in the three years through 2016 and GM has already decided to shut down the assembly plant in Gunsan by the end of May.
“GM CEO Mary Barra has been ditching poor-performing business units around the globe to play to the company’s strengths,” Automotive News said. “She warned earlier this month the company’s operations in South Korea were in dire need of a turnaround, especially as the rise of expensive electrification and self-driving technology encourages companies to trim any units not earning their keep.”
Barry Engle, head of GM’s international operations, discussed the GM Korea restructuring proposal on Tuesday with a task force headed by a ruling party lawmaker from Bupyeong, where GM Korea has its biggest manufacturing plant.
“It is certainly our preference to stay and to fix the business and continue to be an important part of the Korea economy,” he said after the meeting.
GM has been in negotiations with its Korean workers’ union, the government, and Korea Development Bank, which owns 17% of the automaker’s business there. China’s SAIC Motor owns 6% while GM has the remainder.