GM to make South Korea its Asia-Pacific hub

This preliminary deal essentially sets the foundation for Detroit-based General Motors landmark deal, to be signed on May 11 with the South Korean government, which will see it set up its Asia-Pacific HQ in the country. The deals are aimed at rescuring and strengthening GM’s operations in the country.

On Thursday, in a step aimed at rescuing General Motor’s struggling Korean unit, South Korean government officials disclosed some of the terms of the deal that are aimed at rescuing it, and includes clauses that states that GM will have to stay in the country for at least 10 years and set up its Asia-Pacific headquarters in the country.

The deal, which has binding terms, is to be signed on May 11 and seeks to assuage many of GM’s concerns.

Last month, GM clinched a wage deal, at the eleventh hour. Analysts and investors, including the South Korean governments, had had doubts on GM’s commitments to doing business in the country.

The terms of the agreement also state GM will not be able to sell its 77% stake in GM Korea for the next 5 years; after that it cannot let it fall below the threshold of 35% until 2028.

The details of the deal was disclosed by South Korean Finance Minister Kim Dong-yeon.

The deal comes on top of an preliminary deal wherein Detroit-based GM and the Korea Development Bank (KDB), a state-run enterprise, have signed investments worth $7.15 billion which includes capital expenditure commitments to the tune of @ billion; the preliminary deal also includes a $2.8 billion debt-for-equity swap for existing loans GM Korea owes to its parent.

Significantly, GM’s commitments to South Korea which includes setting up of a new Asia-Pacific headquarters in the country excludes China, said the South Korean government.

GM will now buy more parts from South Korean suppliers for its overseas operations and boost procurements from the country by at least $1.85 billion a year, said the South Korean government.

In return, South Korea will provide funding to local suppliers of GM and other South Korean automakers for the development of parts for electric and self-driving cars, and other key automotive parts.

“It was a very difficult and a critical decision,” said Choi Jong-ku, chairman of Financial Service Commission, South Korea’s financial watchdog, who went on to add, the South Korean government had to consider the risk to 156,000 jobs at GM Korea and its suppliers, the eco-system of South Korea’s car industry, as well as exports and local economies.

Barry Engle, President of GM International, stated the U.S. automaker commitment to South Korea was long-term and sincere and that he sees a bright future for GM in the country.

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