General Motors is set to sign a memorandum of understanding on Friday to acquire a 67 per cent stake in Daewoo Motor for R3,48 billion. The deal, which was negotiated over three years, seals the fate of the embattled South Korean manufacturer.
General Motors is set to sign a memorandum of understanding on Friday for the acquisition of a 67 per cent stake in Daewoo Motor for R3,48 billion. The deal, which was negotiated over three years, seals the fate of the embattled South Korean manufacturer.
GM, Daewoo, and its creditors have reached a tentative agreement that will give the US’s biggest motor manufacturer control of four plants, two in South Korea and one each in Egypt and Vietnam. The deal would also give GM control of all Daewoo’s domestic and 22 of its overseas sales subsidiaries.
In addition, GM will assume R4,4 billion of Daewoo’s liabilities, including warranties, severance payments and supplier obligations, the Financial Times reported on Friday.
Creditors led by Korea Development Bank will invest R1,7 billion and receive R10,4 billion in preferred shares in an unnamed new company, giving them a 33 per cent stake. The shares will pay a coupon equivalent to three per cent of the value of the stock for 10 years, after which they can be redeemed.
The memorandum is significant because it paves the way for the largest foreign investment in South Korea’s automotive industry since Renault paid R3,9 billion for Samsung Motors in June last year.
South Korea has recently been severely criticised for neglecting its commitment to corporate reform. Daewoo Motor is the most prominent of several collapsed companies that Seoul’s financial authorities have been trying to sell or restructure since the financial crisis of 1997.
This month, a consortium led, by American International Group and Wilbur Ross, agreed to acquire three financial units in Hyundai Group for R7,4 billion. Creditors also agreed to a debt-for-equity swap for Hynix Semiconductor, the manufacturer of microchips formerly known as Hyundai Electronics.
GM has been aiming to double its market share in Asia and the deal will give the company more than 10 per cent of one of the most closed automotive markets in the region. This is significant, because foreign companies account for only 0,37 per cent of Korean car sales.
GM will get Daewoo’s Changwon and Kunsan plants in South Korea, which analysts say are internationally competitive. In an apparent compromise with Korean authorities – who were keen to preserve the Pupyong plant just outside Seoul – the factory will operate as a contract manufacturer for the new venture.
Barring any objections from creditor banks – 75 per cent of which must agree to any proposal under a new Korean law – the transaction will still take months to finalise as due diligence and other legal procedures are completed. GM is understood to be hoping to close the deal by the end of the year.
