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GM Korea Rescue Debate Finds Rate Of Interest At The Centre Of Discussions

GM Korea Rescue Debate Finds Rate Of Interest At The Centre Of Discussions
There had been calls by the South Korean officials to reduce the rates of interest that General Motors had bene charging from its loss making South Korean unit on loans for years now but the calls were not paid heed to according to media reports based on documents claimed ot have bene seen by the media.
The U.S. automaker proposed support from the South Korean government in helping it to keep its operations in the country running by swapping the debts in its south Korean unit for equity. The company had announced the closing down of one of its GM Korea plants last week.
But the South Korean government is troubled by the interest charges and has called for an audit of what has been described by it as “opaque” management of GM Korea. The government has said that it would take a decision on investments following the audit.
In addition to dropping exports to Europe,  the high interest rates charged from its South Korean unit have been identified as one of the major reasons for the losses of the unit by South Korean officials and politicians.
“Board members asked for interest rate cuts at almost every meeting, but GM turned a deaf ear,” a GM Korea board member told the media.
“From a South Korean perspective, it is not right for the biggest shareholder to receive such a high interest rate when lending money to its affiliate,” said the board member, who declined to be named citing the confidentiality of the matter.
The board member reportedly further said that the parent company had said that “preferential treatment” could not be given to GM Korea and it had to adhere to the principle of equal rates for all of the affiliates.
GM Korea’s latest regulatory filing shows that the rates of interest charged from GM Korea by the parent company was between 4.8 per cent and 5.3 per cent on a loan of nearly 3 trillion won ($2.79 billion).
A number of politicians in South Korea claimed that other automakers charge much less rates and lawmakers are now therefor being called to intervene to help save GM Korea.
South Korean lawmaker Ji Sang-wuk said, citing regulatory filings that Ssangyong Motor, a smaller player than GM Korea, paid 3.51 percent rate of interest while South Korea’s Hyundai Motor paid a rate of interest of 1.49 per cent to 2.26 per cent. 
According to GM Korea’s filings, about 500 billion won have been paid by GM Korea to its parent company in interests during the last four years. In the three years from 2014 to 2016, losses of the South Korean arm of GM has reached a total of 1.9 trillion won.
“This has made GM Korea bear the financial burden from its borrowings from GM Headquarters, which was able to take interest,” a former KDB executive involved in the matter told the media.
 “We made an early redemption to improve our financial structure and reduce our payments burden,” a GM Korea official, who declined to be identified due to the sensitivity of the matter, told the media. “Local banks were reluctant to lend money because of our weak financial position.”

Christopher J. Mitchell

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