General Motors, Seoul agree to $7 billion bailout for South Korea unit

Under the deal, GM will remain in South Korea for at least 10 years, with KDB regaining veto power over GM’s rights to sell assets in the country. (Reuters)
Updated 10 May 2018

General Motors, Seoul agree to $7 billion bailout for South Korea unit

SEOUL: US auto giant General Motors and Seoul have agreed on a multi-billion-dollar bailout for the firm’s troubled South Korean unit, a government minister said Thursday.
GM is the largest US automaker and one of the biggest players in the global industry but its South Korean subsidiary is loss-making and has seen production fall by almost half in the last decade.
Earlier this year GM Korea announced a plan to shut down Gunsan, one of its four plants in the country, and lay off some 2,000 personnel, sparking a prolonged strike and negotiations with the authorities.
Workers and management reached a deal last month on job and welfare payment cuts and a wage freeze across the firm, paving the way for Thursday’s announcement.
The US parent will inject $6.4 billion into GM Korea and the state-owned Korea Development Bank (KDB) will plow in another $750 million, finance minister Kim Dong-yeon told journalists.
GM will invest $2 billion in facilities over 10 years and spend $1.6 billion on corporate restructuring and operational costs.
An existing $2.8 billion loan to GM Korea will be converted into preference shares, saving the unit 150 billion won ($110 million) in interest every year.
GM currently owns 77 percent of GM Korea and KDB has a 17 percent stake, with the remaining shares held by China’s SAIC Motor.
The firm was rebuilt from the wreckage of local automaker Daewoo, which went bankrupt in 2000.
But production has fallen from 940,000 cars in 2007 to 520,000 last year, when GM Korea lost some $139 million in South Korea.
“We hope that GM Korea carries out this bailout package faithfully so that it may become a success story,” Kim said.
“If GM Korea fails to turn around, 150,000 jobs will be threatened and some 3,000 suppliers will be in difficulties,” he added.
Under the deal, GM will remain in South Korea for at least 10 years, with KDB regaining veto power over GM’s rights to sell assets in the country.
GM also pledged to allocate two new models to its Korean plants.
In its first-quarter results last month GM took a $942 million hit for the cost of closing the Gunsan facility.


Cathay Pacific shelves US dollar bond plans amid Hong Kong unrest

Updated 3 min 43 sec ago

Cathay Pacific shelves US dollar bond plans amid Hong Kong unrest

SINGAPORE: Cathay Pacific Airways has shelved plans for its first US dollar debt deal in 23 years, the airline said on Friday, after sources told Reuters that global investors had questioned the pricing due to civil unrest in Hong Kong.

The airline, the biggest corporate casualty of widespread anti-government protests in the Asian financial hub, on Friday lowered its second-half profit expectations, citing “incredibly challenging” conditions in its home market.

Cathay had started meeting investors in Hong Kong and Singapore on Sept. 24 after it mandated four banks to explore carrying out a US dollar denominated bond, according to a term sheet issued at the time, seen by Reuters.

It would have been the first US dollar debt deal for Cathay since 1996 and had been touted as a landmark transaction for the airline given all of its debt is denominated in Hong Kong dollars.

The issuance was to be unrated, and two sources with knowledge of the matter said that Cathay was willing to pay 200 basis points over the US Treasuries rate to secure three-year or five-year funding, with the size and term of the placement dependent on demand.

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Cathay has only carried out 12 bond transactions in the past decade and all were priced in Hong Kong dollars.

However, investors demanded a higher price of at least 300 basis points over US Treasuries, which made the deal more expensive for Cathay, said the sources, who were not authorized to speak publicly about the matter. Cathay’s term sheet had said the transaction would be reliant on market conditions. A Cathay spokesman on Friday said the Hong Kong dollar private placement market was providing more funding opportunities and a debt issuance in that market was completed last month. “We will continue to monitor the US dollar bond market in future,” he said in a statement.

Dealogic data showed that Cathay raised $102 million in October and $64 million in May through Hong Kong dollar denominated deals.

The airline has only carried out 12 bond transactions in the past decade and all were priced in Hong Kong dollars.

Cathay had mandated Bank of America Merrill Lynch, BNP Paribas, Deutsche Bank and HSBC to work on the shelved US dollar bond deal.