South Korea May Withhold Bailout Funds Amid GM Korea Spinoff Controversy

GM Korea has caused plenty of new controversies as it moves forward with a plan to spin off its research and development division. Now, the state-run Korean Development Bank has nearly issued an ultimatum.

The Pulse reported Monday that the KDB may withhold the final half of GM Korea’s bailout funds if it continues to move ahead with a plan to spin off the R&D division. The KDB is scheduled to pay out a remaining $350 million sum as part of a bailout agreement reached earlier this year. If it does not pay the funds, the original agreement to ensure GM Korea remains operational for the next 10 years will be void.

The KDB already paid out $400 million to the local carmaker this year as part of its bailout package to avoid bankruptcy.

GM Korea’s move to spin off its R&D division has come under fire as the first step to prepare for the eventual exit from the market and quit manufacturing cars locally. The auto union first called out GM Korea’s fishy move, but quickly, the KDB filed to stop the process as it was not represented at the board meeting where the decision was made. The KDB is GM Korea’s second-largest shareholder with a 17 percent stake. Parent automaker General Motors owns the vast majority of the unit.

President of the KDB asked if GM was actually committed to GM Korea for a full 10 years and said withholding the remaining funds are certainly on the table. The bank is also looking to file a lawsuit to question the validity of the board’s meeting without KDB present.

Others have floated punishments for GM Korea, too. Incheon Mayor Park Nam-chun said the city could revoke the test driving site GM Korea currently leases free of charge. The 101-acre parcel of land has been a free lease since 2004 and was an original offer to stabilize the local unit with a promise to create more jobs. The mayor said GM Korea is only making citizens “apprehensive.”

GM Korea maintains it has no plans to exit manufacturing, but instead, the spin off would create greater synergies globally to shore up resources for engineering and design.