The South Korean government and General Motors agreed on the key principles Thursday to be applied in deciding whether to support struggling GM Korea, with GM expressing willingness to speed up due diligence of its local arm.

“GM’s decision to make the $2.8 billion investment is highly rated but the request for the Korea Development Bank to participate in the capital increase is likely to be turned down because the government has no reason to take responsibility for GM Korea’s poor management,” said a government official.

GM has reportedly asked for the KDB to take part in converting debt worth $2.7 billion into equity corresponding to the bank’s 17 percent share. It also asked the government to approve GM’s plans in Korea as the loans GM Korea owes to GM, worth $580 million, set to expire at the end of this month. In addition, it sought KDB’s participation in its new facility and other investment plans worth $2.8 billion, as well as tax benefits and subsidies by designating new special foreign investment zones.

Based on these demands, the Seoul government’s funds for GM would amount to some 1.7 trillion won.

In return, GM would put into motion debt-to-equity swaps and investments, while also restructuring the existing plants.

Vice Minister of Trade, Industry and Energy Lee In-ho and First Vice Minister of Finance Ko Hyoung-kwon sat down Thursday with GM International President Barry Engle to discuss key principles in the conditions of supporting GM Korea.

“We called for three principles and Engle replied they were reasonable,” the Industry Ministry’s spokesperson said with respect to the condition of the government support to GM Korea.

The three principles include executing the largest shareholder’s responsibility to normalize the firm, sharing pains among all parties of interest including shareholders, creditors and the union, and unveiling long-term and sustainable plans to normalize the management.

Engle promised to submit a plan to normalize GM Korea’s management as early as possible. A local accounting firm, Samil PricewaterhouseCooper, is also now in talks with GM to review GM Korea’s accounts.

While the negotiation was underway, the Deputy Prime Minister and Finance Minister Kim Dong-yeon brought up the issue as a main agenda item for President Moon Jae-in, citing grave repercussions for the local economy.

Moon and Finance Minister Kim discussed how to minimize the effect of GM Korea closing its Gunsan plant, amid growing resistance from workers there.

Moon had said during a meeting with a chief aide on Monday, “Gunsan’s regional economy is expected to be hit hard by the closure decision,” calling for the formation of a pan-governmental task force and special measures to revitalize the local economy.

Kim also reported to the president what GM had proposed a day before, an investment of $2.8 billion into its loss-making Korean operations over the next 10 years, along with the Seoul government’s pledge to share the burden.

Meanwhile, GM Korea workers demanding the withdrawal of the decision to close the Gunsan plant held off their plan to strike. They held a meeting on Thursday to discuss the strike but did not make a decision. But, since the union formed a committee to lodge a dispute, it is likely they will stage a strike in the future, according to industry sources.

They decided to shift business expenses of 320 million won into funds to carry out industrial action and deduct 30,000 won each from the salaries of all union members.

The labor union currently demands the withdrawal of the decision to close the Gunsan plant, the launch of a tax investigation into GM Korea and a joint investigation into the management and the conversion of 3 trillion won of GM Korea loans into capital.

A public poll showed that more than half of the public would approve of the government support to GM Korea only if GM unveiled an appropriate plan to normalize management.

The survey was done on 500 adults in Korea nationwide on Wednesday by a local research firm Realmeter.

Just over 55 percent of the respondents said the government should support GM Korea on such a condition. About 30 percent of them said taxpayers’ money should not be used to support foreign companies, and 6.4 percent responded the government should support the firm unconditionally to prevent massive unemployment.

By Shin Ji-hye (shinjh@heraldcorp.com)