China’s Doublestar under increasing pressure to support Kumho Tire
Police and fire officials inspect the site of a factory fire at Kumho Tire’s production line in Gwangju, May 19. Yonhap
Korean firm set to introduce specific recovery plan by early July
Doublestar, the Chinese tire manufacturer that acquired Kumho Tire in 2018, is facing growing pressure to provide financial support to the Korean tire company, which was severely impacted by a devastating factory fire last month.
Kumho Tire is still dealing with the aftermath of the fire that completely burned down one of its two production lines in the southwestern city of Gwangju. The loss is expected to result in a massive earnings drop for the company, and thousands of workers from the company and its partner firms are also at risk of losing their jobs.
However, Doublestar, which holds a 45 percent stake in Kumho Tire, has kept a low profile, taking no specific actions to help stabilize the company's operations.
In response, union members of Kumho Tire recently traveled to the Chinese city of Qingdao to meet with Doublestar’s management and urge them to take prompt action by supplying funds for the cash-strapped tire company.
“Doublestar has not presented any alternative action plans regarding the latest factory fire, apparently because the Chinese firm is walking on eggshells around investors,” the labor union for Kumho Tire workers said in a statement Thursday.
The union denounced Doublestar's inaction as an "irresponsible attitude" ignoring the expectations of some 2,500 workers and the regional economy.
The union representatives said they suggested that Doublestar raise capital for the factory's relocation, but the Chinese firm has not immediately accepted the proposal. Instead, the company said it would wait for Kumho Tire’s management to submit necessary documents for a factory recovery and relocation plan.
Since Kumho Tire will need to spend a substantial amount of capital on the potential factory relocation, the company plans to raise funds by selling its factory site in Gwangju. To facilitate this, Kumho Tire has requested approval from the city of Gwangju to change the land-use designation of the site from factory-only to commercial purposes.
If the request is approved, Kumho Tire will be able to sell the site for approximately 1.4 trillion won ($1.03 billion).
Kumho Tire’s management has pledged to introduce a detailed road map for the possible factory relocation by early next month. The tire firm and the regional government will engage in several rounds of negotiations to fine-tune details.
Market analysts expect the latest fire to affect Kumho Tire’s tire production for at least 18 months.
“It will take some 18 months or up to three years for Kumho Tire to normalize its tire production by building a new factory,” Hana Securities analyst Song Sun-jae said.
The aftermath of the unexpected fire will also drive down Kumho Tire's sales by up to 800 billion won, according to the analyst.