FSC chief sides with Kumho Tire creditors

Financial Services Commission Chairman Choi Jong-ku said Kumho Tire creditors’ demand to normalize the Korean tire manufacturer mainly by selling the firm’s majority stake to a Chinese firm is a “prerequisite” for the firm’s survival, during a press conference Wednesday.

Choi called for the tiremaker’s labor union to comply with the self-restructuring plan in the making, amid the union’s opposition due to fears of employment insecurity and a technology leak.

“Kumho Tire creditors’ demand to normalize the level of wages and welfare is a minimum prerequisite for the firm to bounce back,” Choi told reporters, expressing regret over the labor union’s refusal of the creditors’ plan to self-rescue the firm. 

The top financial policymaker also sided with the move of creditors led by the state-owned Korea Development Bank to sell stakes to Chinese tiremaker Qingdao Doublestar, saying the normalization of Kumho Tire is “virtually impossible without the overseas capital input.”

“I expect the labor union to cooperate with (creditors’) normalization process by allowing an entry of foreign capital in a wider perspective, considering the crisis that the firm faces,” he said.

Choi’s remark is in line with that of KDB Chairman Lee Dong-gull.

Lee said in late February at the National Assembly that there is no way to rehabilitate the debt-saddled tiremaker without the labor union’s agreement on the self-restructuring plan. Lee also said court receivership was another option he was considering.

But putting Kumho Tire under court receivership is “the worst-case scenario,” said Choi, vowing to prevent it at all costs.

The remarks came after the labor union on March 8 launched a partial walkout in a show of defiance against creditors’ move to sell 45 percent of shares at 646.3 billion won ($607 million) to Qingdao Doublestar.

The takeover deal between Qingdao Doublestar‘s parent Doublestar Group and Kumho Tire creditors, agreed on March 5, would allow the debt-saddled manufacturer to take advantage of the global sales network of Qingdao Doublestar, which creditors have said would boost the sales performance of Kumho Tire. In the process, the ownership of creditors would be reduced to a combined 23.1 percent from the current 45 percent.

But the deal has been met with protest from the labor union. In February, creditors extended a grace period for the labor union to accept the self-restructuring plan by a month, through the end of March. If the grace period is terminated, Kumho Tire must either repay the loan or file for bankruptcy.

The labor union has argued that sales of the stakes to the Chinese firm would downsize local production lines. Moreover, the plan would also leave the technologies of Kumho Tire unprotected from Chinese business entities, according to the labor union.

Following a 6.4 trillion won deal of Kumho Asiana Group to acquire Daewoo E&C in 2006, its cash-strapped subsidiary Kumho Tire from 2006 to 2008 took out loans worth 1.6 trillion won to increase production capacities. A global financial crisis in 2008, however, left the conglomerate financially troubled and the tire maker, unable to repay debts, went through a workout in 2009, triggering massive layoffs.

Meanwhile, regarding KDB‘s due diligence on GM Korea that has suspended its factory operation, Choi said he was “confident that GM Korea would resume automobile production” at Korean factories, pinning hopes on GM Korea’s improved profitability through a boost in sales. GM Korea is likely to put diesel cars into production at Korean facilities, instead of electric vehicles, for the sake of immediate profits for the firm, according to Choi.

By Son Ji-hyoung 
(consnow@heraldcorp.com)