Korea Development Bank steps in with short-term loans to local GM unit

State-run Korea Development Bank said on Wednesday that it will provide short-term loans to the troubled South Korean unit of General Motors after April, on the condition that the US automaker co-operate with due diligence.

KDB, a major shareholder of GM Korea with a 17 per cent stake, began due diligence on Wednesday that will last for two months, before it makes a decision on how to help GM turn around the lossmaking business.

The policy bank will provide secured short-term bridge loans to GM Korea to help the company tide over its liquidity shortages. The amount of the loans has yet to be decided.

GM has warned Korean officials that the unit will face a “cash crisis” in the first quarter without new funding, as nearly Won2tn ($1.88bn) of GM Korea’s debts to its parent are due by the end of March or early April.

GM is pressing Seoul to contribute to a $2.8bn investment plan it has outlined for the South Korean operations over the next 10 years, as the US company continues to downsize unprofitable overseas operations.

GM has also asked the South Korean government to designate its factory sites as foreign investment zones to be eligible for tax breaks while KDB has urged GM to present clearer plans on allocating new model production to its Korean unit.

GM has come under fire in South Korea after announcing a plan last month to shut one of its four factories in the country. Almost 2,500 workers of GM Korea — or 15 per cent of its staff — have applied for a redundancy package.

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