Kumho Tire’s management normalization problem, which has been on the brink of oversight, has been settled with the decision to sell the company to Doublestar. On April 1st, 2,741 out of a total of 2,987 unionized Kumho Tire workers voted for the ‘Labor-management consultation for management normalization’, with 1,660 (60.5%) of the workers voting in favour of the sale.
Following this decision, Korea Development Bank (KDB), the main creditor bank, signed a business normalization memorandum of understanding (MOU) with Doublestar on the April 2nd to immediately provide funds of up to 200 billion won. After the funds are injected into the company, Kumho Tires will be able to resolve debt repayment, payment of three-month back pay, and payment to subcontractors.
According to a KDB official, about 27 billion won of the input funds will be used to pay off the bill due on April 2nd, and the maturity of the 40 billion won corporate bond will be extended to April 5th.
KDB also plans to provide 200 billion won in loans to help improve facility financing and reduce the annual interest rates of Kumho Tires by about 23 billion won through debt maturity extension and interest rate cuts.
Before Doublestar officially takes over Kumho Tires, it must undergo certain procedures such as trademark negotiations with Kumho Industrial and approval by the Defense Industry of the Ministry of Trade, Industry and Energy. This is expected to be completed by the first half of this year at the latest, with the financial situation at Kumho Tires expected to improve significantly after this time.
With the capital increase, 646.3 billion won from Doublestar can be used as corporate operating funds, and combined with other loans, Kumho Tires will be able to secure more than 800 billion won in funding.
Doublestar promised in an agreement with KDB with regards to attracting foreign capital the independent management of Kumho Tire, a collective agreement with the labor union, a guarantee of third labor succession including employment, and facility investment.
Apart from this, discussions on the union’s employee stock ownership plan, individual employee stock options, and the company’s share stock ownership option will be help. A KDB official said, “Since we reached a large agreement between labor and management, this part of the process will be agreed upon through the Kumho Tire management normalization process.”
Meanwhile, the normalization measures agreed upon by the labor union include a return of 25 percent of bonuses over the next two years, a freeze on wages until 2019, and a suspension of some welfare programs. A KDB official said, “Since the labor-management agreement has settled the labor union issues, the normalization process will proceed rapidly.”
Chinese factories, which account for 36 percent of China’s total production capacity, are suffering a chronic deficit as domestic sales in China plummet. Kumho Tires users and creditors are expected to normalize their operations in China as soon as Doublestar, a Chinese company, becomes the new owner.
