Value context and insight. lkm@koreatimes.co.kr
KDB threatens not to back GM Korea
State lender vows legal battle against US auto giant
Korea Development Bank Chairman Lee Dong-gull bows at the beginning of a National Assembly audit of state-run banks at Industrial Bank of Korea headquarters in Seoul, Monday. Yonhap
By Lee Kyung-min
By Lee Kyung-min
The Korea Development Bank (KDB) may cancel its plan to give GM Korea 400 billion won ($375 million), the second portion of the $750 million government lifeline initially promised to the Korean unit of GM, KDB Chairman Lee Dong-gull said Monday. The other half has already been paid to the firm for facility construction.
“We consider injecting the remaining amount is better, but the plan may be scrapped if protests continue,” he said at the National Assembly audit of state-run banks at the Industrial Bank of Korea headquarters in Seoul.
However, he cast doubt on whether the move would benefit the country, saying a failure to uphold the agreement will give the carmaker cause to withdraw from Korea altogether, citing breach of contract.
“Is that a desirable scenario? It would be better to have GM Korea manufacture in Korea for the next 10 years in accordance with the earlier agreed-upon purpose of the cash injection.”
The remarks come amid the controversy surrounding the financially troubled Korean unit.
Lee said he would consider filing an injunction against GM Korea, seeking to nullify what he called a “gravely flawed” plan by the company to establish a separate corporate entity for research and development (R&D).
“Once the spinoff becomes finalized, it will have far-reaching consequences. We are reviewing whether the case has legal merit so as to move forward with the injunction and settle the issue once and for all,” Lee said.
The move came days after the carmaker's shareholders approved the R&D plan at a meeting without KDB officials present, Oct. 19, a procedure the KDB considers lacked “due process.”
The bank said the approval was in breach of an MOU signed by the two parties under which 85 percent of the shareholders must agree on certain business decisions, a claim refuted by the carmaker which says establishing a spinoff corporate body was not among 17 agenda items that require such a number for approval.
During the audit, GM Korea Vice President Choi Jong refuted the KDB's claim, saying, “The spinoff is not subject to the KDB's veto and therefore there are no grounds for nullification.”
“The spinoff does not infringe on shareholders' rights, which is our long-claimed stance recently recognized by the Incheon District Court,” he added.
The head GM office in the U.S. holds a 77 percent stake in GM Korea, while the KDB has 17 percent.
The MOU states the KDB can veto any move by the company to sell over 20 percent of its total assets. However, it has no clear stipulation on a veto concerning spinoff plans, the reason the KDB deems requires a judge's determination.
The much-controversial spinoff came amid brewing concerns at both the KDB and with union workers over the possible withdrawal of GM from the country.
The KDB fears the injected 800 billion won in taxpayers' money could be squandered, while union members fear layoffs, against which they had organized a strike.
GM Korea's 10,234-strong union plans to come up with a means of legal protest after the National Labor Relations Commission called into question the legitimacy of such a strike.
The ruling effectively put on hold the planned strike, approved earlier by a 78.2 percent yes vote amid shared concerns that GM will only retain the low-cost research unit here after shutting down its labor cost-heavy manufacturing facilities.
“We cannot accept the spinoff, which is nothing but a pretext for a complete withdrawal of their business from Korea, the same as they did in Russia and Vietnam,” said Jung Ju-kyo, an official from the Korean Metal Workers' Union.
“Despite the commission's order, we will continue to protest through various legal means any efforts toward splitting up the company.”
Meanwhile, the KDB is coming under growing criticism for failing to exercise its veto right in a timely manner, which critics say was the result of the bank's “oversight failure.”
The KDB chairman said July 20 that the state lender would exercise its veto if GM Korea pushes ahead with the spinoff.
Despite the seemingly “stern” stance, the bank has failed to require GM Korea to elaborate on the plan over the past three months, only reiterating that it sought to review whether the spinoff would have dire consequences as claimed by the union.
The inconsistent signal helped the carmaker continue with the plan without major hurdles, a reason for the state lender being increasingly rapped for its “gross incompetence.”
GM Korea said it will push ahead with the establishment and registration of the new entity by early December.
“What we can say for sure is the shareholders meeting has been concluded, which we consider speaks volumes about how the future course of the issue will unfold,” an official from the company said.
“We will continue with our plans to prepare for the development of new car models at the new R&D unit without delay.”